Analysis: Retiring US coal plants cut deliveries

OREANDA-NEWS. October 14, 2015. Most coal-fired power plants that are scheduled to retire in 2016 already started cutting back on coal deliveries early this year, underscoring that a significant portion of market weakness that can be tied to tighter federal emissions rules is substantially underway.

Plants retiring next year took 13.7mn short tons (12.3mn metric tonnes) of coal from January through July, down from 17.6mn st in the same period of 2014, according to an analysis of US Energy Information Administration data. Total coal receipts declined to 445.4mn st from 474.1mn st.

Most generators are moving forward with retirement plans despite the US Supreme Court's ruling in June that the US Environmental Protection Agency (EPA) did not properly consider the costs of regulating mercury emissions from power plants. The DC Circuit Court of Appeals is deciding whether it should vacate the rule or remand it back to EPA to address the decision.

Only a handful of utilities have changed course since the high court's ruling. Most recently, NRG Energy canceled plans to convert unit 9 of its Avon Lake plant in Ohio to burn natural gas because the 640MW unit can comply with the mercury rule next year by changing coal specifications and installing back-end controls.

Low natural gas prices may be helping to keep most utilities steadfast in their coal-plant retirement plans. Spot gas prices have fallen to levels that make it cheaper than coal for many utilities to burn. Even for midcontinent and western US facilities, gas is gaining a competitive advantage, averaging below \\$2.50/mmBtu at key hubs this month. That typically is the point at which Powder River basin (PRB) coal loses its competitive advantage.

Gas prices in parts of the east have fallen even further. Spot natural gas prices at Tetco zone M-3 — a mid-Atlantic benchmark — averaged \\$1.06/mmBtu so far this month as moderate weather kept demand low while supply remains robust.

But many generators using Appalachian coal that have been slated for retirement next year had started curbing coal deliveries even before 2014. Consumers Energy's JR Whiting plant has taken hardly any Central Appalachia coal since at least 2013. It received 21,209st from the basin's coal mines last year and none this year, compared with 36,865st in all of 2013.

Whiting's receipts of PRB coal picked up to 1.07mn st last year from 985,584st in 2013. It took 707,739st of the basin's coal this year through July, compared with 617,724st in the same period last year.

Four other plants scheduled for retirement took more PRB coal in the first seven months of this year than in the same period of 2014: Public Service of Oklahoma's Northeastern, Omaha Public Power District's North Omaha, Consumers Energy's BC Cobb and JC Weadock.

But overall, PRB receipts to retiring plants have fallen by 23pc, to 8.89mn st in the year through July.

PRB coal demand has come under pressure from tighter environmental regulations as smaller, older coal-fired plants that had not already installed scrubbers go off line.

Illinois basin coal producers are faring better than other basins because many of their customers are baseload generating units where utilities are making investments to upgrade. The majority of coal-fired power plants taking the basin's coal that were slated for retirement went off line this year. Receipts of Illinois basin coal to retiring units fell by 9.8pc to 1.65mn st for January-July 2015.

Central Appalachia receipts fell by 19pc to 453,166st and Northern Appalachia declined by 43pc to 6,605st. Just one plant taking Northern App coal is retiring in 2016, Michigan State University's TB Simon, which also takes Illinois basin coal. A handful of other Northern App customers retired this year.