This is part one of a two-part series in which S&P Global Market Intelligence analyzed federal data to determine the pace of U.S. coal-fired power plant closures and their impact on U.S. coal producers. This installment looks at the domestic utilities that burn coal to generate electricity, while part two focuses on the companies that produce coal for power generators.
Like the years before, U.S. utilities kept on retiring coal-fired power plants in President Donald Trump's first year in office even as the administration proclaimed an Obama-era "war on coal" was over. In 2018, they doubled their pace.
Despite presidential efforts to repeal regulations or otherwise boost coal consumption, power generators in the U.S. are set to retire a total of 14.3 GW of coal-fired power plant capacity in 2018, up from 7.0 GW of capacity retired in 2017, according to an S&P Global Market Intelligence analysis. This year will mark the highest level of coal retirements since 2015, when the U.S. power companies included in the analysis retired 14.8 GW of coal-fired capacity.
Another 22.9 GW of coal plant retirements have already been announced or received regulatory approval for 2019 to 2024, marking 71.6 GW of coal retired or scheduled to be retired between 2014 and 2024. The analysis shows about 245.6 GW of current operating coal plant capacity in the U.S. and does not include more recent retirement announcements from Entergy Corp. and a city-owned coal plant in Michigan.
Utilities have cited a range of reasons for closing coal plants including higher costs, aging plants, future regulatory uncertainty and public sentiment around the fuel and its contributions to climate change. The trend is expected to continue as aging power plants become increasingly uneconomic, Seth Feaster, an Institute for Energy Economics and Financial Analysis energy analyst, wrote in an October report on coal retirements.
On a third-quarter earnings call, Andrew Evans, the executive vice president and CFO of Southern Co., a power company with substantial coal generation capacity, said the company hit a record high for gas generation and the lowest level of coal generation in 15 years during the quarter. At recent gas price levels, he added, natural gas units are "displacing virtually all of our coal units in the dispatch curve."
NextEra Energy Inc. Chairman, President and CEO James Robo said on an October call that with government incentives, the new build cost of wind and solar is below the operating cost of existing coal and nuclear power plants in the U.S. and projected it will be lower even without incentives within a decade.
"I think this industry has not really internalized yet how disruptive that will be when you see the ability to put to work those kinds of widespread renewables, particularly combined with storage," Robo said.
As recently as 2005, coal plants made up 70% of American Electric Power Co. Inc.'s generating capacity. Now, AEP's fleet is only about 47% coal-fired, and the company has no current plans to build new coal generation as it transitions to a "more balanced resource portfolio to help mitigate risk for our customers and shareholders alike," AEP spokeswoman Melissa McHenry told S&P Global Market Intelligence.
"AEP has factored future carbon regulations into the company's evaluation of generation resource options for many years and will continue to do so," McHenry said, adding that the company has already cut carbon dioxide emissions by 47% since 2000 and plans to further cut emissions to 60% of 2000 levels by 2030 by boosting renewable energy, gas, demand response and energy efficiency and by improving transmission and distribution systems.
"Our customers have made it clear that they want us to partner with them to provide cleaner energy and new technologies while continuing to provide reliable, affordable energy. Our investors want us to protect their investment in our company, deliver attractive returns and manage climate-related risk," McHenry said. "This long-term strategy allows us to do both."
AEP is the third-largest company by announced and approved future coal retirements, with 2.3 GW of retirements set for 2018 through 2024. The second-largest company by retiring capacity, Vistra Energy Corp., has more than double the amount of capacity retiring in the same period. The company did not respond to a request for comment, but earlier statements pointed to a yearlong analysis determining that some of its coal plants were no longer economical, even though one unit had been put into service as recently as 2010.
The S&P Global Market Intelligence analysis shows FirstEnergy Corp. is by far the largest ultimate owner of coal power plants set to retire in the coming years, but the company's president and CEO, Charles Jones, recently said the company has completed its separation from FirstEnergy Solutions Corp., the bankrupt former subsidiary that owns the plants with announced upcoming closures. Still, at a Nov. 13 industry conference, Jones reiterated his support of the Trump administration's efforts to prop up coal and nuclear generation with incentives to protect older, unprofitable coal generation.
"I continue to believe that our country is heading into a difficult place if we allow nuclear plants that are perfectly good and coal plants that are needed for resiliency in the winter to continue to close prematurely," Jones said.
However, in making their own retirement decisions, several utilities said they have already taken into account the reliability and resilience of their systems.
Northern Indiana Public Service Co., a subsidiary of NiSource Inc., recently laid out a plan to retire its remaining five coal units by 2028. The company's current fleet is about 65% coal-fired capacity, spokesman Nick Meyer told S&P Global Market Intelligence, but when the company set out to create a reliable, clean and affordable generation portfolio, it determined that the solution would be more renewable energy resources.
"I mean, we looked at hundreds of scenarios that were potentially viable options, and what we're seeing was cost savings associated with the retirement of coal and secondly, the replacement option pointing toward low-cost renewable energy options," Meyer said. "In the context of our own space, we don't envision new coal coming back onto our system. From the broader industry standpoint, from what we've seen, we also don't anticipate that."
Similarly, DTE Energy Co. has made plans to retire all of its coal plants by 2040 and even set up a website touting its efforts to reduce carbon dioxide emissions more than 80% by 2050. The reductions are substantially tighter than what would have been required under the Obama administration's Clean Power Plan, DTE spokeswoman Randi Berris said. The company will further detail how it will ensure reliability and affordability for its customers as it transitions away from aging coal plants in a March 2019 filing with Michigan regulators, Berris added.
"The competitive price, abundant supply and efficiency offered by natural gas, the continuing reduction in the cost of wind and solar power and the current age of DTE's coal plants, combined with other environmental regulation already in effect, continue to drive DTE to diversify power capacity," Berris said.
The reshaping of WEC Energy Group Inc.'s generation fleet — retiring coal plants while building out new natural gas and renewable capacity — is also expected to preserve fuel diversity while reducing both customer costs and environmental issues, spokeswoman Amy Jahns told S&P Global Market Intelligence.
"These changes are driven mainly by sustained low natural gas prices; a dramatic reduction in renewable generation cost, particularly solar; and limited to flat growth in electricity demand," Jahns said. "Electric market prices are expected to remain low for the foreseeable future, and the planned plant retirements and new investments will better balance supply with demand."
Duke Energy Corp. is focused on expanding the flexibility of its coal generation assets but has still been generally following a strategy of replacing older coal units with "state-of-the art, efficient natural gas combined-cycle generation, thereby improving reliability," Duke Energy spokeswoman Kim Crawford said. Part of the company's long-term investment strategy includes adding natural gas and renewable generation that will lower its carbon footprint.
"We have retired 47 coal units since 2011 and have no plans to add new coal capacity," Crawford said. "Our plan is to diversify our system and significantly reduce carbon dioxide emissions (reduce 40% from 2005 levels by 2030) in a way that balances the reliability and affordability that our customers expect and our regulators require."