Don’t be fooled: there’s no denying that BOTH regulations and low natural gas prices have combined to reduce the use of coal. Even though coal has been the basis of electricity since its inception, the U.S. power industry has been announcing coal retirements at an unprecedented rate. And there’s simply no question that the election of Donald Trump will help coal, although coal won’t regain its dominance.
Announced retirements or extended shutdowns have been attributed to high compliance costs associated with EPA regulations, namely the Mercury and Air Toxics Standards (MATS) and Regional Haze programs, with the Clean Power Plan (CPP) policy on the horizon. SNL has determined that MATS alone could retire 46,000 MW of coal from 2012-2022, an entire Pennsylvania’s worth of power capacity taken offline in a nation adding 35 million people and $4-5 trillion in real GDP every 10 years (here).
The Obama administration’s CPP, facing legal challenge from 27 states, was supposed to be the clincher, but that’s now in doubt with the election Donald Trump as U.S. President. As stated by the U.S. Energy Information Administration (EIA), our most important (and non-partisan) energy reporting agency:
- “Nearly 18 gigawatts of electric generating capacity was retired in 2015…More than 80% of the retired capacity was conventional steam coal…Coal’s share of electricity generation has been falling, largely because of competition with natural gas. Environmental regulations affecting power plants have also played a role. About 30% of the coal capacity that retired in 2015 occurred in April, which is when the U.S. Environmental Protection Agency’s…MATS rule went into effect,”EIA, March 2016
For the pending CPP, just take MISO, the second largest electric system in the U.S., after the PJM interconnection system, in terms of electric demand served. MISO has found that the most cost-effective way of achieving a 30% percent reduction in CO2 emissions over the next 20 years – similar to what would be required nationally under the CPP - would lead to the retirement of as much as 21,000 MW of coal capacity, or nearly 33% of the 65,000 MW that will be operating at the end of this year.
These coal retirements have an impact on capacity prices. With a record 48-50 million Americans in poverty, our Electricity Price Index has continued to climb to all-time highs – as coal power continues to lose market share. Coal plants usually bid into the capacity market at very low prices, primarily driven by the fact that they are baseloaded units and can recover much of their revenue requirements in the energy market. To illustrate, one analysis has concluded that the CPP will increase utility bills for African Americans in Ohio by over $400 per year (here). I implore you to read the next two sentences twice.
EPA head Gina McCarthy’s recent statement that “Frankly, the coal industry has been going downhill since the 1980s” …..frankly isn’t true (here).
The proof is that from 1985-2008, U.S. coal production boomed 33% from 884 million tons to 1,172 million tons (here) and coal generation boomed 43% to nearly 2,000 TWh (here).
Yes, low natural gas prices have hurt coal, but policy such as the MATS rule, the CPP, renewable portfolio standards, New Source Performance Standards, the retroactive vetoes of mining permits, and large federal subsidies for competing fuels are clearly all governmental decisions that are exacerbating the situation. The election of President Trump is a huge lifeline for the industry - the obvious difference between drastic decline or stagnation/slight growth.
In fact, EIA estimates the CPP would force the retirement of nearly 60 coal plants nationwide. Looking forward, EIA’s National Energy Modeling System confirms that it’s not gas prices that’s most significant for coal, but the presence or absence of the Clean Power Plan – as I demonstrate in the three graphics below.
And know one last thing the mainstream media won’t tell you: the U.S. coal industry has spend a whopping $130 billion since 1990 upgrading facilities for better environmental performance, with undeniably great results (here).