Retirements Continue to Loom on Future of U.S Coal Plants

The heat is being turned up. And for the future of coal power in America, not in a good way!  Growing competition from cheaper, cleaner alternatives combined with stricter regulations imposed by government and environmental agencies is making it more difficult for coal-fired facilities to survive. Such regulations have recently led several power producers to announce plans to retire coal plants.

According to the U.S Energy Information Administration (EIA), in 2012 the three main sources of electricity generation in the United States were attributed to coal (37%), natural gas (30%), and nuclear (19%). In response to the new standards, they estimate that 60 gigawatts of coal-fired power generation will shut down by 2020.  The major factor in the closing of these power plants is the requirement to comply with the Mercury and Air Toxics Standards (MATS) which demand a great deal financially from the plants.

As a means to force the coal industry to clean up their processes, the EPA enacted the Mercury and Air Toxics Standards (MATS), which requires significant reductions in emissions of mercury, acid gases, and toxic metals. In most cases, compliance with the MATS requires flue gas desulfurization equipment, also known as scrubbers, or dry sorbent injection systems to be installed. The coal plants are required to meet the maximum achievable control technologies (MACT) in order to control output of these emissions by April 2015. A one-year compliance exemption may be granted by state environmental permitting agencies as a provision of the regulations.  Many states are likely to use this leeway.

Operators of about 16% of coal-fired power plants are weighing the economics of upgrading their facility or retiring their plants.  At the end of 2012, the EIA reported that 70% of the coal plants had equipment that complied with the MATS, 6% planned to add the necessary equipment, and 8% announced plans to retire. Several factors may contribute to planned retirements of coal plants: age of the coal-fired generator, the cost of compliance with the known and anticipated federal and state regulations (specifically MATS that make investment in equipment like scrubbers uneconomical), modest electricity demand growth, and the relative fuel prices of other sources of energy like natural gas.

On Tuesday, April 29th, provisions were made to the interstate air pollution Clean Air Act which put increased pressure on coal-fired power plants to get clean.  In 2011 the EPA attempted to adopt a rule that would force polluting states to reduce emissions that contaminate the air in downwind states. Several power companies and states appealed this rule in 2012 and a federal appeals court in Washington sided with them. The provisions made in conjunction with the Supreme Court this April firmly sided once again with the EPA which brought arguments before that court stating that downwind states are susceptible to soot and smog produced by coal plants which are linked to health problems including asthma, lung disease and premature deaths.

According to the EPA, “The Clean Air Act’s “good neighbor” provision requires EPA and states to address interstate transport of air pollution that affects downwind states’ ability to attain and maintain National Ambient Air Quality Standards (NAAQS).” This ruling gives the EPA permission to execute new plans for states that do not control their downwind pollution.  However, the court did cite the EPA does not have to require states to reduce pollution by the exact amount they emit considering the cost of pollution controls.  The EPA argued that the savings in health care costs would far outweigh estimated $800 million dollars annually that it will cost power plants to comply.

These types of regulations challenge the economics of more than just the plants themselves and bring about questions from a variety of opponents. As of 2012, coal was responsible for over 760,000 U.S. jobs. How will this affect the communities whose economies are reliant on this resource which will now begin to retire? How will this affect manufacturers in the steel, paper, cement, and plastics industries that use coal to produce their products? Coal exploration is a source of income for the U.S. and with other countries increasing coal consumption and relying heavily on coal generation, how will the government handle this challenge?

While many people are focused on a cleaner planet with healthier air, others point out that closure of these coal plants could cause problems for electricity generation in the U.S.  Availability and infrastructure issues, combined with harsh cold spells caused natural gas prices to spike dramatically this past winter. Coal plants played a successful role in supplying electricity when natural gas failed.  Coal advocates are cautious of what could happen if we experience similar conditions in the years to come when this coal generated power is no longer available.

These are questions that we will be getting answers to in the coming years. Nonetheless, it is evident that it is becoming harder for these coal-fired power plants to produce energy economically as alternative generation options become more feasible and cost effective. As always, we will keep a close eye on the changes taking place with the future of electricity generation and how it may affect our clients!