REPORT: 39% OF COAL PLANTS COULD BE DRIVEN OUT BY NATURAL GAS BY 2016

Lindsay Kalter
GHG Monitor
10/19/12

Up to 39 percent of the U.S. coal fleet could face retirement by 2016 due to low natural gas prices, a decrease in projected power demand and uncertainty surrounding Environmental Protection Agency regulations on the industry, according to a recent report. Completed by the economic consulting firm the Brattle Group, the analysis says that those market and regulatory changes could shutter 59 GW to 77 GW of coal capacity within the next several years, an estimate that is about 25 GW higher than a similar forecast the organization published in 2010. “On the market side, the projected energy margins for coal plants have decreased and the need for capacity has been deferred,” the report says. 

On the regulatory front, a recent federal court ruling that vacated EPA’s Cross-State Air Pollution Rule (CSAPR) has added “an increased level of uncertainty regarding the timing and requirements under a potential future proposal by the EPA,” the report states. “These recent conditions have resulted in an acceleration of announcements to retire coal plants, same as early as this year.” The report states that the recent ruling leaves room for future changes that could have damaging effects on the country’s coal fleet. However, the authors of the report concede that the future of CSAPR is unknown. EPA last week called for a rehearing on CSAPR. “We do not offer an opinion on whether it will be appealed, replaced, or revised, except to recognize that the future environmental regulations remain uncertain. For instance, enforcement of the Regional Haze Rules for the coal plants in the eastern states could have similar impacts and obligations to a revised CSAPR rule,” the report states.

Price of Gas Has Larger Effect Than EPA Regs, Report Says

The report states that the assumed market conditions of natural gas will play a much larger role in coal plant retirement than regulatory developments, despite many recent remarks from EPA’s opponents in Congress. In the case of a $1/MMBtu increase in gas prices, for example, projected coal retirements fall to between 21 GW and 35 GW, according to the report. If the pendulum were to swing the other way and gas prices decreased by the same amount below their current rate, coal plant retirements would spike to between 115 GW and 141 GW, according to the analysis. The report notes, though, that most of the retired coal capacity is expected to be replaced with gas generation, which could result in a “modest increase” in prices.

The report is the most recent in a string of analyses that have projected a shrinking coal fleet—to varying degrees—in the coming years. The study’s predictions echo data released this summer by the Energy Information Administration, which estimated that cheap natural gas prices, new environmental regulations and the flattening of electricity demand would lead to roughly 27 GW of coal retirements by 2016, most of which from 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. In May, The Brattle Group predicted that Midwestern coal plants could face “significant challenges” from installing the retrofits needed to comply with EPA’s Mercury and Air Toxics Standards by the 2015-2016 deadline.