A perfect storm of lower natural gas prices, new emission rules and weak national demand for electricity is causing many utility companies to ditch coal-fired power generation, according to a new report.
Susan Tierney, managing principal at Analysis Group, said it is becoming less expensive to keep coal-fired power plants offline than to keep them running. The reason isn’t entirely because of new EPA emission rules, which the industry has claimed.
“In the past year, coal plants have been facing a perfect storm of falling natural gas prices, a continued trend of high coal prices and weak demand for electricity,” Tierney wrote in the report.
Tierney wrote that those factors have combined to make coal a less desirable fuel source.
Coal-generated electricity has been waning over the past few years, dropping to its lowest level on record in March of this year, according to the U.S. Energy Information Administration.
At the same time, natural gas-powered plants are becoming increasingly popular as the price of the fuel falls to record prices and few emissions emitted by natural gas.
According to Doyle Trading Consultants, the trend is expected to continue as more than 41,000 megawatts from coal-fired power plants could be retired by 2020. If true, the coal-fired fleet would be cut by 17 percent in eight years.
Utility companies are increasingly seeing coal as the past and natural gas as the future, a new report by Black & Veatch found.
“The percentage of respondents who believe there is a future for coal in the United States has dropped significantly,” the report said.
The Environmental Protection Agency has taken the bulk of criticism over the decline in coal. Several companies, including FirstEnergy Corp. and Luminant, have threatened to idle coal-fired plants and lay off workers due to the new emission rules.
EPA Administrator Lisa Jackson defended her agency last week, saying the problems facing the coal industry are due to economics.
“The problem for coal right now is entirely economic,” she told The Guardian. “The natural gas that this country has and is continuing to develop is cheaper right now on average. And so people who are making the investment decisions are not unmindful of that.”
Tierney said in her report that the economic factors are pushing more utility companies to make the switch away from coal.
“Unrelated to EPA air regulations, the revenue pressure from the decreases in natural gas prices in 2011 and early 2012, would cause the least-efficient coal plants to operate even less than previously and to earn lower net revenues when they would run,” she wrote.
And during the transition from coal to natural gas, wholesale electricity prices were lower in 2011 versus 2010, except for the Electric Reliability Council of Texas, which manages the bulk of the Texas grid.