EIA PROJECTS BIG UPTICK IN COAL RETIREMENTS OVER NEXT SEVERAL YEARS

Cheap Gas Prices, Low Electricity Demand, Environmental Regs All Contribute 

Tamar Hallerman
GHG Monitor
08/03/12

The energy statistics arm of the Department of Energy is projecting that coal-fired electricity generation will continue to nosedive in the coming years in the face of cheap natural gas prices, new environmental regulations and the flattening of electricity demand, leading to an estimated 27 GW of retirements by 2016. New data published late last week by the Energy Information Administration indicates that 75 coal units, or 8.5 percent of the country’s fleet of nearly 1,400 coal-fired units, will shutter by 2016. Most of that capacity, though, consists of older, less-efficient units operating only part time in coal-reliant regions like the mid-Atlantic and Ohio River Valley, where there is extra capacity in the grid, according to the figures, which are a compilation of data from generators about their plans for unit retirements over the next several years.

Those retirements stem from a number of factors, according to EIA, but perhaps most prevalently from cheap natural gas prices due to the development of unconventional drilling technology and the subsequent shale boom. “The variable costs of operating natural gas-fired capacity have fallen relative to those of coal-fired plants,” EIA said. Meanwhile, the price of coal has increased, making it a less attractive option compared to gas for new generation. Environmental regulations from the Environmental Protection Agency are also a driving force in the announced retirements, according to EIA. It highlights EPA’s recently finalized Mercury and Air Toxics (MATS) rule, which requires all new and existing coal and oil-fired capacity to install pollution-control technology like scrubbers, baghouses, dry sorbent injection technology or electrostatic precipitators by the 2015 to 2016 timeframe to cut down on mercury and air toxics emissions. That specific rule has been a notable driver for some retirements, utilities have said, given that it is sometimes cheaper to shutter older units or switch to gas than to comply. State-level laws and regulations like renewable portfolio standards also play a role in the shift, EIA said.

Record Number of Retirements

Roughly 9 GW worth of capacity, or about 55 coal units, is expected to be mothballed in 2012 alone, the largest amount to be shut down in a single year to date, according to the data. The number of retirements estimated from 2012 through 2016 is more than four times the number of shutdowns that occurred in the previous five-year period, EIA said, when there was only 6.5 GW worth of retirements. The agency also reported that utilities are planning on shuttering larger units on average than in previous years. Between 2009 and 2011, that average size of a coal unit that was retired was 59 MW. In the period between 2012 and 2015, that figure is expected to jump to 154 MW, EIA said. Most of those units are expected to be nearly 60 years old on average.

The expected retirements will likely shift the scales even further in favor of natural gas-fired generation. After decades of being the most widely used fuel source in the U.S., EIA announced earlier this summer that coal now sits largely even with gas in terms of total electric generating capacity nationwide, each comprising about 32 percent of the grid. 

Southern Announces Coal Retirements

EIA’s report came out the same week that Southern Company announced plans to shutter 3 to 4 GW of older coal units to comply with stricter environmental regulations, particularly MATS. In its second quarter earnings call last week, Southern said that it plans on installing environmental controls on 13 GW of coal, while switching another 3 to 4 GW of its fleet to natural gas, in total decreasing its coal capacity by about 18 percent. While the utility has been on the forefront of investing in advanced coal technology—its subsidiary Mississippi Power continues construction on its Kemper County carbon capture and storage plant despite a series of ongoing political and regulatory hurdles—the company is one of many traditionally coal-reliant utilities that is shifting over to gas. Earlier this year, American Electric Power announced that it would be shutting down about 12 percent of its coal fleet. In January, the Ohio-based FirstEnergy Corp. also announced its plans to retire six older coal-fired power plants due to the MATS rule.