WSJ(12/23) The Coal Age Nears Its End
After burning coal to light up Cincinnati for six decades, the Walter C. Beckjord Generating Station will go dark soon -- a fate that will be shared by dozens of aging coal-fired power plants across the U.S. in coming years. Their owners cite a raft of new air-pollution regulations from the Environmental Protection Agency, including a rule released Wednesday that limits mercury and other emissions, for the shut-downs.
But energy experts say there is an even bigger reason coal plants are losing out: cheap and abundant natural gas, which is booming thanks to a surge in production from shale-rock formations in the U.S. "Inexpensive natural gas is the biggest threat to coal," says Jone-Lin Wang, head of global power research for IHS CERA, a research company. "Nothing else even comes close."
For decades, coal produced more electricity than all other fuels combined, and as recently as 2003 accounted for almost 51% of net electricity generation, according to the U.S. Energy Information Administration. But its share has dropped sharply in the last couple of years. It fell to 43% for the first nine months of 2011, as natural gas's share has jumped to almost 25% from under 17% in 2003. Meanwhile, gas prices, on average, have fallen 37 cents to $4.02 per million British thermal units so far this year.
Many big utilities have announced retirements of coal-burning power plants, including Southern Co., Progress Energy Inc., First Energy Corp., Xcel Energy Inc., Ameren Corp. and the Tennessee Valley Authority. Coal consumption by the power sector is expected to fall 2% this year and 4% next year; even small movements are important because utilities burned 92.4% of the 1,071 million tons of coal distributed last year. Experts think 10% to 20% of U.S. coal-fired generating capacity will get shut down by 2016. Some of the soon-to-be-defunct plants have been operating only sporadically because they are inefficient and expensive to operate; Duke Energy Corp.'s Beckjord plant in Ohio, for example, didn't even run three of its six generating units in 2010.
Market and regulatory forces are "sounding a death knell for many an older coal-fired power plant," says Hugh Wynne, senior research analyst for Sanford C. Bernstein & Co. in New York. John Stowell, vice president of energy and environmental policy at Duke, says the EPA rules are triggering "an aging baby-boomer-type situation," that will force a record number of retirements -- and soon.
The coal and mining industries have opposed the new EPA regulations as job- killers, though some coal companies have job openings they can't fill. The communities that are home to the closing plants will lose jobs and tax revenues.
Closing Beckjord, for example, will eliminate as many as 120 jobs at the plant, according to Duke. The loss of tax revenues will cost the local school district in New Richmond, Ohio, about $2 million a year, says Teresa Napier, the district's chief financial officer.
Meanwhile, natural-gas plants are springing up around the country, from Connecticut to California. More are expected to crop up along natural-gas pipelines, especially in places like Texas where demand for power is outstripping supplies. Duke, for example, is building four big power plants. Two, in the Carolinas, will burn natural gas. One, in Indiana, will convert coal to a cleaner, combustible gas. Only one, in North Carolina, will burn coal. Cost is a big reason for the shift. Coal prices have jumped an average of 6.7% a year for the past decade, according to the U.S. Energy Information Administration. Coal cost $12 to $75 per short ton in early December, depending on where it was mined and how hot it burns.
And with energy markets flooded with cheap natural gas from shale rock, utilities have been idling coal capacity and running gas-fired plants harder. Fitch Credit Ratings estimates this is whittling coal sales by 63 million tons a year, equivalent to 6% of 2010 U.S. coal consumption. Fitch says the new EPA regulations could reduce coal sales by another 55 million tons a year, or 5% by 2016, due to plant retirements.
Coal-firm shares have shown the strain. Peabody Energy Corp.'s stock has dropped by half since April, to $34.54, and CONSOL Energy Inc.'s stock is off by a third since March to $38.38. But the new EPA rules are also significant. On Wednesday, the agency released its latest rule, requiring power plants to slash emissions of mercury, arsenic and other toxic pollutants within three to four years.
Many state utility commissioners say they fear the agency's recent rules will push up electricity prices or could even hurt reliability if too many plants are shut down. A senior EPA official said the agency doesn't order plants to shut down -- they are fined for noncompliance, instead, when not meeting emissions standards -- so "making a decision not to retrofit a plant is really a business choice by the owner."
(END) Dow Jones Newswires 12-22-11 2047ET Copyright (c) 2011 Dow Jones & Company, Inc.