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Released October 30, 2019 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--U.S. coal-fired power plants and coal mines are trapped in a vicious cycle driven mainly by low natural gas prices and plentiful gas reserves. As gas continues to win the competition against coal for the power market, more coal-fired generators are closing, triggering a declining demand for coal and the closure of more coal mines.
And, true to the logic of a vicious cycle, bad news feeds on itself, leading to worse news. In its October Short-Term Energy Outlook (STEO) the U.S. Energy Information Administration (EIA) predicted coal's share of the utility-scale electric generation market will fall to about 25% this year and 22% next year, down from 28% in 2018. Natural gas' share of that market, meanwhile, is expected to rise to 37% this year and next, up from 34% last year. A decade ago, roughly half of the country's electricity as generated from coal.
"People used to say coal was just one really hot summer, or really cold winter, away from reasserting itself and regaining lost market share," commented Britt Burt, Industrial Info's vice president of research for the global power industry. "This past summer, when it was as hot as Hades in Texas, the lights stayed on for the most part, though there were a few brownouts here and there. ERCOT's reserve margins fell because there is not a lot of wind generation when the temperature gets to about 100 degrees. Maybe it'll take more than one really hot summer or really cold winter to bring coal back."
Low-cost natural gas is one reason for coal's continuing loss of market share among electric generators. In the highly competitive electric fuel market, where many asset owners are able to switch from one fuel to the next for a few cents' difference in a fuel's delivered cost, continued declines in natural gas prices are making coal less and less economic.
The EIA's STEO predicted cash spot prices for natural gas at Henry Hub will average $2.67 per thousand cubic feet (Mcf) this year and $2.61 in 2020, down from $3.27 per Mcf in 2018 and $3.10 in 2017.
Click on the image at right to see a graphic of spot cash prices for natural gas at the Henry Hub.
The utility sector's ongoing abandonment of coal also is driven by state regulatory bodies that review utilities' long-term plans to keep the lights on. These integrated resource plans (IRPs) look out over a 10- or 20-year horizon and project the most cost-effective and reliable mix of electric sources. Regulators must approve them before utilities can make contractual commitments to build new generation or contract for it.
In recent weeks, utilities have closed or announced plans to close thousands of megawatts of coal-fired generating capacity:
The EIA said about 15% of the nation's coal-fired generation has been retired since 2017 and another 10% of the coal fleet is expected to be closed by the end of next year. For more on this, see September 19, 2019, article - Coal and Coal-Fired Generation: From Bad to Worse.
Across the country, utilities that once burned millions of tons of coal per year are working to decarbonize, a response to changing expectations of regulators, investors and customers as well as shifting fuel economics. Utilities like Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina), American Electric Power Company (NYSE:AEP) (Columbus, Ohio), Xcel Energy Incorporated (NASDAQ:XEL) (Minneapolis, Minnesota) and operating units of Southern Company (NYSE:SO) (Atlanta, Georgia) are removing coal from their generating fleet to reduce their carbon footprint.
Xcel aims to reduce its carbon footprint by 80% by 2030.
Duke recently announced a goal of reducing carbon emissions by 50% by 2030, up from a prior goal of a 40% cut. Duke also announced a goal to achieve net-zero carbon emissions by 2050.
CNN quoted Lynn Good, Duke's chief executive, as saying: "Retiring coal plants is an important part of achieving this (decarbonizing) objective. The economics have been front and center in this transition. Low-cost natural gas, the declining cost of renewables, and, frankly, low interest rates, have been an important part of how we are able to invest and retire plants."
Duke said it plans to retire seven coal-fired units by 2024. That's in addition to the 49 coal units that have been shuttered since 2010.
In announcing its plans to retire 16 of its 24 coal-fired units, a total of 2,800 MW of generating capacity, by 2030, Rick Link, PacifiCorp's vice president of resource planning and acquisitions, said: "The transition in how we meet our customers' energy needs is under way. This plan reflects the ongoing cost pressure on coal as wind generation, solar generation and storage have emerged as low-cost resource options for our customers."
In its October STEO report, the EIA predicted coal use by the U.S. electric sector will fall to about 546 million short tons this year and 496 million short tons next year, down from 665 million short tons in 2017 and down more than half from its recent historic peak of more than 1 billion short tons in the early years of this century.
Click on the image at right to see a graph detailing U.S. coal consumption by electricity generators.
Declining demand has led to several Chapter 11 bankruptcy filings in the past year, according to a report in The Wall Street Journal. Some of the country's largest coal producers, including Westmoreland Coal Company (Englewood, Colorado), Cloud Peak Energy Incorporated (Gillette, Wyoming), Blackhawk Mining LLC (Lexington, Kentucky) and Blackjewel LLC (Milton, West Virginia) have sought bankruptcy protection since October 2018. For related information, see October 24, 2019, article - Coal Mine Closures Accelerate, and There's Scant Good News on the Horizon.
On Tuesday, Murray Energy Corporation (Clairsville, Ohio), the largest private coal company in the U.S., filed for Chapter 11 bankruptcy protection. For related information, see October 29. 2019, market brief - U.S. Coal Miner Murray Energy Files for Bankruptcy.
Foresight Energy LP (NYSE:FELP) (St. Louis, Missouri) recently entered forbearance agreements on interest payments to lenders, which starts the clock ticking on restructuring negotiations, the Journal said.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
And, true to the logic of a vicious cycle, bad news feeds on itself, leading to worse news. In its October Short-Term Energy Outlook (STEO) the U.S. Energy Information Administration (EIA) predicted coal's share of the utility-scale electric generation market will fall to about 25% this year and 22% next year, down from 28% in 2018. Natural gas' share of that market, meanwhile, is expected to rise to 37% this year and next, up from 34% last year. A decade ago, roughly half of the country's electricity as generated from coal.
"People used to say coal was just one really hot summer, or really cold winter, away from reasserting itself and regaining lost market share," commented Britt Burt, Industrial Info's vice president of research for the global power industry. "This past summer, when it was as hot as Hades in Texas, the lights stayed on for the most part, though there were a few brownouts here and there. ERCOT's reserve margins fell because there is not a lot of wind generation when the temperature gets to about 100 degrees. Maybe it'll take more than one really hot summer or really cold winter to bring coal back."
Low-cost natural gas is one reason for coal's continuing loss of market share among electric generators. In the highly competitive electric fuel market, where many asset owners are able to switch from one fuel to the next for a few cents' difference in a fuel's delivered cost, continued declines in natural gas prices are making coal less and less economic.
The EIA's STEO predicted cash spot prices for natural gas at Henry Hub will average $2.67 per thousand cubic feet (Mcf) this year and $2.61 in 2020, down from $3.27 per Mcf in 2018 and $3.10 in 2017.
The utility sector's ongoing abandonment of coal also is driven by state regulatory bodies that review utilities' long-term plans to keep the lights on. These integrated resource plans (IRPs) look out over a 10- or 20-year horizon and project the most cost-effective and reliable mix of electric sources. Regulators must approve them before utilities can make contractual commitments to build new generation or contract for it.
In recent weeks, utilities have closed or announced plans to close thousands of megawatts of coal-fired generating capacity:
- PacifiCorp (Portland, Oregon), a unit of Berkshire Hathaway Incorporated (NYSE:BRK.A) (Omaha, Nebraska), on October 3 released its draft IRP that called for retiring five coal-fired units by 2028 and adding more than 6,000 megawatts (MW) of wind and solar over the next six years. The utility's draft plan calls for retiring some plants sooner than previously announced. The units to be retired include: Jim Bridger Power Station Unit 1 (retire in 2023 instead of 2037); Naughton Power Station Units 1 and 2 (retire in 2025 rather than 2029); Craig Power Station 2 (retire in 2026 instead of 2034); Colstrip Power Station Units 3 and 4 (retire in 2027 instead of 2046); and Jim Bridger Unit 2 (retire in 2028 instead of 2037). In addition, the Dave Johnston Power Station outside Glenrock, Wyoming, also may be shuttered.
- Northern Indiana Public Service Company (Merrillville, Indiana), a unit of NiSource (NYSE:NI) (Merrillville, Indiana), on October 1 said it plans to retire most of its coal-fired generation by 2023 and issued requests for proposals (RFP) for 300 MW of wind, 2,300 MW of solar and solar-plus-storage projects and an undefined amount of other capacity resources. It said renewable generation, coupled with storage, was proving to be a less-expensive alternative to other generation options.
- Tri-State Generation & Transmission (Westminster, Colorado) closed its 100-MW Nuclear Power Station in September, several years earlier than planned.
- FirstEnergy Solutions (Akron, Ohio) said it will idle its last Pennsylvania coal-fired plant, Bruce Mansfield, on November 7, two years earlier than planned, because the plant lacked "economic viability in current market conditions." FirstEnergy Solutions, a unit of FirstEnergy Corporation (NYSE:FE) (Akron, Ohio), earlier this month received approval for its Chapter 11 bankruptcy reorganization plan from a federal judge.
The EIA said about 15% of the nation's coal-fired generation has been retired since 2017 and another 10% of the coal fleet is expected to be closed by the end of next year. For more on this, see September 19, 2019, article - Coal and Coal-Fired Generation: From Bad to Worse.
Across the country, utilities that once burned millions of tons of coal per year are working to decarbonize, a response to changing expectations of regulators, investors and customers as well as shifting fuel economics. Utilities like Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina), American Electric Power Company (NYSE:AEP) (Columbus, Ohio), Xcel Energy Incorporated (NASDAQ:XEL) (Minneapolis, Minnesota) and operating units of Southern Company (NYSE:SO) (Atlanta, Georgia) are removing coal from their generating fleet to reduce their carbon footprint.
Xcel aims to reduce its carbon footprint by 80% by 2030.
Duke recently announced a goal of reducing carbon emissions by 50% by 2030, up from a prior goal of a 40% cut. Duke also announced a goal to achieve net-zero carbon emissions by 2050.
CNN quoted Lynn Good, Duke's chief executive, as saying: "Retiring coal plants is an important part of achieving this (decarbonizing) objective. The economics have been front and center in this transition. Low-cost natural gas, the declining cost of renewables, and, frankly, low interest rates, have been an important part of how we are able to invest and retire plants."
Duke said it plans to retire seven coal-fired units by 2024. That's in addition to the 49 coal units that have been shuttered since 2010.
In announcing its plans to retire 16 of its 24 coal-fired units, a total of 2,800 MW of generating capacity, by 2030, Rick Link, PacifiCorp's vice president of resource planning and acquisitions, said: "The transition in how we meet our customers' energy needs is under way. This plan reflects the ongoing cost pressure on coal as wind generation, solar generation and storage have emerged as low-cost resource options for our customers."
In its October STEO report, the EIA predicted coal use by the U.S. electric sector will fall to about 546 million short tons this year and 496 million short tons next year, down from 665 million short tons in 2017 and down more than half from its recent historic peak of more than 1 billion short tons in the early years of this century.
Declining demand has led to several Chapter 11 bankruptcy filings in the past year, according to a report in The Wall Street Journal. Some of the country's largest coal producers, including Westmoreland Coal Company (Englewood, Colorado), Cloud Peak Energy Incorporated (Gillette, Wyoming), Blackhawk Mining LLC (Lexington, Kentucky) and Blackjewel LLC (Milton, West Virginia) have sought bankruptcy protection since October 2018. For related information, see October 24, 2019, article - Coal Mine Closures Accelerate, and There's Scant Good News on the Horizon.
On Tuesday, Murray Energy Corporation (Clairsville, Ohio), the largest private coal company in the U.S., filed for Chapter 11 bankruptcy protection. For related information, see October 29. 2019, market brief - U.S. Coal Miner Murray Energy Files for Bankruptcy.
Foresight Energy LP (NYSE:FELP) (St. Louis, Missouri) recently entered forbearance agreements on interest payments to lenders, which starts the clock ticking on restructuring negotiations, the Journal said.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
