Across the board, many market watchers and energy analysts are describing 2015-2016 as the beginning of the end for Coal. Over 90% of coal mined in the US goes to power generation, but because of cheap Natural Gas, there’s less of it being burned and less of it being mined. While there’s not so much a “war on coal,” there is an outright snubbing of the stuff for cleaner and cheaper alternatives. Coal fired power plants are being snuffed out by a perfect storm of age, new environmental regulations, and —most importantly — an ocean-like glut of natural gas.
Out with the Old
Though the stuff has fired technological advancement for nearly 200 years, coal’s affordability as a fuel is being undermined by the public sense that its cost to the environment and public health make it too expensive to burn.
More than 11,000 MW of coal-fired capacity was retired by October 2015. This included old plants built between 1944 and 1972. Three of these old plants were closed as a result of 1999 legal action from sulfur dioxide and mercury pollution drifting into eight north eastern states. This pollution cost the owner, AEP, over $8 million in settlement costs and an additional $5 billion to install pollution controls on its other coal plants.
The main takeaway? Coal as a commodity may be cheap, but installing and maintaining the pollution controls to make it safe to burn add more and more to the fuel’s cost.
EPA’s Final Mercury and Air Toxics Standards (MATS) of 2015 grew from the need to ensure that coal fired plants would comply with the Clean Air Act (1990). Of all toxic air pollants, 77% of acid gases, 60% of sulfur dioxide, 62% of arsenic, and 50% of mercury come mostly from coal-fired power plants. MATS was partially blunted by the Supreme Court this past summer when it rules that the EPA failed to consider the $9.6 billion cost of implementing the new rule, sending litigation back to the D.C. Circuit Court.
In the meantime, many power companies have taken a more financially practical (and publicly safer) tack of retiring old plants and converting others to cheaper, cleaner burning natural gas plants. That practicality might pay off since the D.C. Circuit Court ordered the rule be left in place while the EPA figures out how to make it comply with the Supreme Court’s decision.
Historically, natural gas has been mainly used for heating in northern states. Cleaner burning than coal, natural gas had been too expensive to use in anything but generation plants to cover summer peak loads in Texas. The industry changed in 2009 when hydraulic fracturing of shale gas plays revolutionized the US natural gas industry. Within a few short years, the US has become a major natural gas producer.
Only a few weeks into 2016, US natural gas production has been breaking records. Both high production and abundance has kept natural gas price so low that, from April through at least October 2015, more electricity was generated in the US by natural gas than coal. The 2016 heating season began with a whopping 4000 billion cubic feet in storage, and with warm weather brought on by a strong El Niño, natural gas prices have remained relatively stable below $2.40/mmBTU since Dec. 24, 2015.
In April, 2015, electric power generated by natural gas outstripped coal-fire generators for the first time ever. This trend continued through to October as the MidAtlantic, Southeast, and Central regions saw the largest year-over-year increases of natural gas generation growth. According to EIA, natural gas monthly share of U.S. electricity generation rose to 35.1% in October 2015, while coal’s share dropped to about 31.1%.
Coal Continues. However…
Not surprisingly, coal demand is dwindling. Even the small amount the US exports to China is falling as China’s economy stalls. Consequently, US coal prices declined in 2015 by roughly 22%. Production in 2015 fell to roughly 900 million short tons (MMst), 10% below 2014 —the lowest level since 1986.
The Central Appalachian Basin was hit the hardest due to highest operating costs from deep shaft mining. The year’s production level fell 40% below the 2010-2014 period. Since 2012, over 40 coal mining companies have gone bankrupt, most of them in the Central Appalachian Basin. Most recently in January, 2016, Arch Coal, the second-largest U.S. coal miner, filed for bankruptcy. And it will get worse for the industry as EIA predicts U.S. coal production will fall an additional 29 MMst (3%) in 2016.
With all those gloomy facts on the table, it’s clear the coal industry faces a changing energy environment. Natural gas is expected in 2016 to hold onto 31.6% of the national generation pie while coal’s falls to 34.1%. There’s also anticipation that there will be more investment in wind and solar energy this coming year due to Congress extending renewable tax credits. While it will be part of the energy generation mix for years to come, it certainly looks like old King Coal no longer deserves that crown.