EPA MATS Rule, Aging Fleet and Natural Gas Prices Drive Coal-Fired Plants into Retirement

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Researched by Industrial Info Resources (Sugar Land, Texas)--More than 80% of the electricity generating capacity that was retired last year in the U.S. was coal-fired, according to an update from the Energy Information Administration published earlier this month. Many of the 2015 retirees were shut down in April last year and more of the same is expected in 2016, especially next month. There are four main factors converging to drive this trend: market forces, fleet age and two regulatory date-driven factors.

Click the image at right to view a graph detailing U.S. coal power plant demolition projects.

Dealing first with the apolitical side of the story, the reality is that much of the coal-fired fleet is old. Coal-fired plants that are retiring in the next five years were put into service more than half a century ago, on average. This means they have fewer environmental controls than more recently constructed plants, coal-fired or otherwise. It also means that they are more costly to operate and their owners find it increasingly difficult to compete with natural gas-fired plants that are often newer and more efficient. When these realities are combined with still relatively low natural gas prices, the economic case for keeping older coal-fired plants running becomes untenable and has little to do with the country's political climate. This, of course, brings us to the more complicated side of the story.

EPA's MATS, Supreme Court Dates
Economics aside, many blame the Environmental Protection Agency's (EPA) Mercury and Air Toxics Standards (MATS) Rule for the retirements. This is understandable for two main time-related reasons.

First, power plant owners had until April 2015 to comply with MATS, or April 2016 if they received a one-year extension. Owners who thought they could bring their plants into compliance have either already done so or have filed an extension to April 2016 to buy more time. The vast majority of extension requests have been approved.

Second, even though the U.S. Supreme Court is conducting a review of the MATS rule, the verdict is not expected until the summer of 2016. This means that plants that received an extension last year and had not come into compliance by April 2016 would be violating MATS if the Supreme Court approves the rule. Plant owners--normally risk-averse corporations who must answer to shareholders--had three options. They either had to make their plants MATS compliant, shut down plants too costly to bring into compliance, or keep non-compliant plants open in the hope that the Supreme Court strikes down MATS. This last option was not a gamble many were willing to take.

The net effect, as stated by senior executives from several power generation companies, is that plants that can be made compliant will be, and plants that cannot be made compliant will be shuttered.

That leaves one possible additional scenario--plants that were made compliant with MATS but end up operating in a future where MATS has been vacated by the Supreme Court. Owners of these potential MATS-compliant plants operating in a MATS-free environment may explore the option of selectively using their new pollution control systems to either reduce costs or improve efficiency.

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