Coal is an interesting substance. In simple terms, it is a material comprised of long carbon chains of a sinister, jet black color. It will leave a black mark on everything it comes into contact with, both metaphorically and literally. Yet, when put in a high temperature and pressure environment, these sheets of carbon become compressed. If the appropriate amount of heat and pressure is applied, the geometric structure of these carbon sheets changes — and you have bonds of sparkling diamonds. (So yes, the diamond-encrusted jewelry that we men spend vast sums of money on to please our ladies is no more than a rearrangement of one of the planet’s most abundant resources.)
Photo:Hourman, Creative Commons, Flickr
But we all know that coal has other uses too, primarily as a fossil fuel. Approximately 50% of electricity generated in the United States comes from coal-fired plants. In China, more than 80% of electricity generated comes from coal. This is no surprise given that coal is the cheapest source of fuel for stationary power and that coal-fired plants are the easiest to develop and build. As such, coal is likely to maintain its dominant share of the Chinese electricity market as the regional economy continues to grow at dizzying rates. China has been building approximately one gigawatt of coal-fired power per week in recent times. So, for better or worse, it looks like coal is here to stay.
Why is this bad? Easy. Coal is dirty, hands down the dirtiest form of fossil generation. And it continues to cause headaches for all Kyoto-inspired countries and organizations.
Why is this good? That’s also easy. Because of the vast market opportunity that this problem has created.
And so we are witnessing.
Chicago-based FuelTech (FTEK) has developed both air pollution control systems and fuel treatment programs for utility, industrial, and solid waste applications. These solutions directly control emissions and improve efficiencies, respectively, for any plant that combusts fossil fuels. Additionally, Denver-based Evergreen Energy (EEE) has developed a technology that reduces the amount of water in coal before combustion, thereby producing a higher level of efficiency and less harmful emissions. There are a bunch of smaller players that also compete in the space, and I am eager to see how the market unfolds in the quest to reduce pollution.
Besides stricter environmental laws across the globe that are undoubtedly creating a challenge for the coal industry to overcome, is safety. The recent trapping of six people in a Utah coal mine has reignited safety consciousness for the industry, at least in the United States. A recent article in EnergyBiz magazine outlines new legislation that is being proposed to help reduce catastrophes within coal mines. While the number of annual fatalities has dropped dramatically since the early 1900s, last year was the worst in a decade.
So to wrap things up, coal is an interesting substance. It has a lengthy history and is a large reason why the world became industrialized starting way back in the 19th century. It is also unlikely to disappear anytime soon, with its low cost compared to competing technologies. However, the industry is now facing challenges never seen before. And with clean air and safety at stake, I hope the bar continues to be raised.
Disclosure and Confessions: I do not own stock in FTEK but may in the future. I do not own stock in EEE, and with a raw beta of 4.37, its risk premium might be too high even for my tastes. Part of my IRA is allocated to a mutual fund comprised mostly of Chinese stocks, and it is quite handily my best performing position over the past year. I have never given, nor received, a lump of coal for Christmas. The only diamond I have ever owned was a plastic one I found in a Cracker Jack box when I was seven.