During the run-up and actual campaign for the Presidency in 2012, the Obama administration was cited for conducting a “war on coal” through various Environmental Protection Agency (EPA) actions, including but not limited to:
Mercury Air Toxin Standard (MATS)- EPA working on reconsidered proposal for final ruling
- Rule issued in 2013
- In 2012, the U.S. Court of Appeals for the D.C. Circuit overturned CSAPR
- The Clean Air Interstate Rule (CAIR) remains in place
Even though EPA has tightened regulations that have contributed to the retirement of coal fired units, a closer examination reveals that there is a war on coal, but it is also being waged by market economics. Last year, low natural gas prices, set the marginal price for electricity across several regions of the country. In 2012, approximately 9,000MW of coal fired generation retired in the U.S. Likewise several companies have announced plans to shut down or convert older coal fired plants in the coming years. Over the next 5 year, coal fired plant retirements will equal almost 10% of all installed generation capacity in the U.S. Many coal fired plants in the U.S. have been in service for many decades and can not compete against new gas fired plants. In 2015, many of the coal fired plants to be retired will be more than 50 years old.
Overview
The following map shows the location of announced coal plant retirements.
As the map clearly illustrates, the majority of the planned retirements will occur in the Mid-Atlantic and Mid-West regions, which is part of the PJM power market.
The following graph shows the proposed retirements of coal fired generators from 2013-2016 (Source: EIA).
Lower Natural Gas Prices are driving coal retirements
While it was politically expedient to only blame EPA regulations for the retirements shown above, such a claim ignores the fundamentals of the wholesale power markets. The chart below shows the cost per MWh for different fuel generation resources from December 2011-2012. With the exception of coal from the Powder River Basin and natural gas in New York State, natural gas fired power was consistently cheaper than coal fired power during 2012.
The importance of this data is that even without EPA regulations, natural gas has been waging war on coal and displacing it as a cheaper fuel source for generation. During the past 12 months, it has been more economical to burn natural gas than Central Appalachian coal. This was not the case just a few years ago, when natural gas prices were above $5/MMBtu. However, due to the boom in the natural gas market from fracking, natural gas has displaced coal as the preferred low cost fuel source and has encouraged retirements of coal fired generation. In 2012, coal fired generators accounted for 38% of the country’s electricity supply, and for 2013 the percentage is expected to be 40%. In the early, 2000’s coal accounted for more than 50% of the nation’s electricity supply.
According to a report by the Brattle Group, a wholesale energy market consulting firm, if natural gas prices were to drop by $1/MMBtu relative to April 2012 forward natural gas prices, coal retirements would increase to 115,000 MW from the roughly 59,000 MW that are currently planned. By contrast, if prices for natural gas increased by $1/MMBtu, coal retirements would drop to roughly 21,000 MW, or less than half of the currently slated retirements. This data supports the conclusion that the increase in coal retirements is also being driven by market forces.
The Road Ahead for Coal
The following factors will dictate the future of the coal industry in the coming years:
- Coal-to-gas switching
- Environmental regulation affecting coal extraction and generation
- Lower electricity demand from the industrial sector
- Hydraulic fracturing (fracking) development
- Producers working to increase exports
- Mandated electric renewable generation
- Retirement of coal fired generators instead of converting or upgrading
- Higher combined cycle utilization rates
- Development of clean-coal technology
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