Last July, Minnesota Power said it
would idle and eventually close its
coal-fired Taconite Harbor power
plant on the shore of Lake Superior.
It followed up the announcement
in September with an integrated
resource plan filed with the state of
Minnesota, noting the closure
would be accompanied by plans to
increase natural gas generation and
add renewable power – all of
which would help the utility “to
position itself for compliance with”
the CPP.
At 150 MW, the relatively small
plant burned only 684 000 short t of
coal in 2014 – a drop in the ocean
compared with the
999.7 million short t of coal mined in
the US last year. But it was enough to
catch the attention of Peabody Energy,
the largest US coal producer, which
cited the closure in an August filing
with the US Court of Appeals for the
District of Columbia in support of an
emergency stay petition brought
against the EPA by 15 states opposing
the CPP.
“EPA tries to brush off the Taconite
shutdown as ‘likely part of the
general shift away from coal,’ but the
unrebutted evidence is that the [CPP]
was a precipitating factor,” said the
Peabody filing. “Indeed, a sector
already weakened by market forces
and pre-existing environmental
regulations is even more vulnerable to
draconian regulatory measures like
the [CPP].”
Vulnerable seems an apt
description for the US coal industry.
While it is too early to tell what
impact the CPP might have, it could
not have come at a worst time. Low
natural gas prices have made coal
uneconomical to burn in many parts
of the country. Meanwhile, in markets
where coal can compete, producers
are often pitted against each other.
The outlook could look even
gloomier if utilities begin to view
carbon dioxide as a risk regardless of
what happens with the CPP.
“Generally speaking, utilities are
obviously looking at the CPP, and you
know, there is some pretty clear
handwriting on the wall here, and
some are starting to take some
action,” said one utility official who
did not want to be identified.
What seems clear is the US coal
industry faces an uncertain future,
though by no means is it going away.
US coal production
In 2008, US coal production peaked at
1172 million short t, with roughly 94%
consumed by industry and the electric
power sector, where coal‑fired
generation made up 48.2% of the US
power market.
That same year, prices reached an
all-time high for the physical coal
underlying the two Central Appalachia
futures contracts: the 12 500 Btu/lb
CAPP rail (CSX) contract, which hit
US$160.60/short t, and the
12 000 Btu/lb CAPP barge contract,
which hit US$143.25/short t.
Seven years later, it is a much
different picture. According to the US
Energy Information Administration
(EIA), US coal production is estimated
to total 914 million short t in 2015 – a
22% drop from the recent peak and
the lowest annual total since 1986.
Coal generation is expected to
make up 35% of the US power market
in 2015, with the most share lost to
natural gas, which made up 21.4% of
US generation in 2008 but is expected
to make up 31.6% in 2015.
And prices for the physical coal
underlying two of the three major coal
futures contracts are at multi‑year
lows: in early October, the CAPP rail
contract fell to US$35.40/short t, a
78% drop from its 2008 peak, while
the CAPP barge contract dropped to
US$40.75/short t, down 72% from its
2008 peak.
All this has happened before the
CPP has been made official and
despite it facing an uncertain future.
Already, 26 states and a number of
industry groups have filed legal
challenges to the plan, which would
take effect in 2022.
Clean Power Plan impact
But the EPA’s projections do not bode
well for the coal industry. According
to the agency’s regulatory impact
analysis for the plan, US thermal coal
production could drop to
729 million short t by 2025 in its base
case review. The figure could drop as
low as 606 million short t under a
more stringent scenario.
“The [CPP] turned out to be worse
than we thought it would be,” said
Paul Bailey, Senior Vice President for
policy and affairs at the American
Coalition for Clean Coal Electricity.
“Coal is down a lot, and the EPA likes
to claim that’s because of natural gas
prices, and some is due to that, but a
great deal of it from the analysis
we’ve done is due to EPA
regulations.”
In 2008, the net summer capacity of
US coal-fired generation totalled
roughly 313 GW, according to the
EIA. As of October, Platts-unit
Bentek Energy estimated net summer
capacity for US coal-fired generation
at roughly 300 GW, with another
24 GW of announced retirements by
2025.
Bailey and much of the industry
attribute the recent closures to the
EPA’s Mercury and Air Toxics
Standards Rule, which mandated
certain emissions controls be installed
by April 2015. Even though the
Supreme Court remanded the rule in
June, utilities had already made the
decision to close roughly 13 GW of
coal-fired generation that was not
economical to retrofit.
With the CPP, Bailey believes
utilities could possibly shutter
40 – 50 GW of coal-fired generation,
resulting in the closure of roughly a
quarter of the US coal fleet compared
with 2008.
“I think it’s a little premature to
say how it will really impact the
industry, and whether it will be
actually implemented,” said
Betsy Monseu, the CEO of the
American Coal Council. “We know
there is opposition to it far beyond
just coal; there are utilities
concerned states concerned […] and
there is going to be a great deal of
push back.”
Coal is not going away
Regardless of the outcome, Monseu
rightly points out that coal generation
is not going away. The surviving
plants will likely run at higher
capacity factors, “but I don’t believe
22
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World Coal
|
January 2016
