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US utilities, power providers continue plans to accelerate coal retirements

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021

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Essential Energy Insights - January 2021


US utilities, power providers continue plans to accelerate coal retirements

U.S. coal producers are already in a tough spot, but the hints power generators dropped on second-quarter earnings calls suggest they may soon be announcing plans to retire even more of the nation's aging coal fleet.

Demand for coal has been decimated by the COVID-19 pandemic, with production and employment in the sector falling to new lows as the lower demand weighs further on a sector already in secular decline. In recent weeks, multiple power generators made comments about the future of their generation fleets suggesting more coal plant retirements loom on the horizon.

"We certainly look at the technology, which is out there, and we've certainly seen renewable energy technology and their related costs continue to come down," Ameren Corp. Chairman, President and CEO Warner Baxter said on an Aug. 7 earnings call, responding to a question about the company's integrated resource planning activities in Missouri. He added the company would "take a careful look at our coal-fired energy centers and the useful lives of those plants" and "really think about what's really going to deliver value to our customers in the state of Missouri."

An Ameren spokesperson said the company would share additional details upon filing the integrated resource plan, or IRP, in September.

Ameren Missouri, known legally as Union Electric Co., operates four coal-fired power plants, including the 2,464-MW Labadie and 1,218-MW Rush Island facilities.

The utility's 2017 integrated resource plan called for the retirement of 2,750 MW of its 5,100 MW fleet of coal-fired generation over the next 20 years, starting with shutting down the 867-MW Meramec Energy Center by the end of 2022.

Executives with Wisconsin-headquartered Alliant Energy Corp. said on an Aug.7 earnings call that while they have not announced any early retirements in Iowa, they are evaluating potential coal plant shutdowns as part of the under-development "Clean Energy Blueprint" plan.

"We'll have some more information to share later this year on any potential early retirements for Iowa state," Alliant Executive Vice President and CFO Robert Durian said on the call. A spokesman for Alliant did not respond to an inquiry about potential coal plant retirements.

The company said it plans to achieve net-zero carbon emissions by 2050 and eliminate all coal from its portfolio by 2040. Alliant said in May it plans to retire the 417.8-MW, coal-fired Edgewater power plant in Sheboygan County, Wis., by the end of 2022.

Coal's never-ending spiral

Ameren and Alliant both operate coal fleets that extensively source coal from the Powder River Basin. That region, which produces a high volume of relatively low energy content coal with few export options, has seen drastically reduced demand in recent years. Both companies' hints at reassessing their coal fleets fit into a broader theme: when U.S. power producers talk about coal on public calls held for investors, it typically involves plans to transition away from the once-dominant fuel.

Power generators continue the steady march of coal plant retirements, even under a friendly presidential administration that campaigned on bringing back jobs in coal. The U.S. Environmental Protection Agency recently completed a coal combustion residuals rule that Vistra Corp. President and CEO Curtis Morgan said would have "far-reaching implications for the power sector."

"At a very high level, the rule requires certain coal plants that dispose of coal ash and surface impoundments to either make necessary capital investments and operating changes to bring these coal ash disposal sites into compliance with the federal rule or to permanently retire by 2023 or 2028, depending on the size of the surface impoundment," Morgan said. "We are fine-tuning the steps we plan to take in each of our impacted sites. ... It is important to note that our valuation suggests that there are several coal plants, especially in [PJM Interconnection LLC], that will be under pressure due to this rulemaking."

Morgan noted that the company would provide a formal update on its site-level plans at a virtual investor event in September.

NiSource Inc. President and CEO Joseph Hamrock said on an Aug. 5 call that the company will soon be unveiling details about incremental capital opportunities in the range of $1.8 billion to $2 billion across 2022 and 2023 related to its electric generation strategy.

"This investment represents ownership through joint venture partnerships of approximately half the renewable generation portfolio needed to replace our coal plants retiring by 2023," Hamrock said, touting the company's plans to reduce greenhouse gas emissions by 90% off of a 2005 baseline by 2030. "As we have previously indicated, we expect to retire nearly 80% of our remaining coal-fired generation by 2023 and 100% by 2028."

NiSource utility subsidiary Northern Indiana Public Service Co. recently received approval to retire its 1,625-MW coal-fired R.M. Schahfer plant by 2023. NiSource has said lower-cost renewable energy sources are likely to replace the retiring coal generation.

Cleaner strategies

Evergy Inc. President and CEO Terry Bassham touted the company's retirement of more than 2,400 MW of fossil fuel generation since 2005. He noted that the company has added or contracted 4,600 MW of renewables in the meantime.

Bassham told analysts and investors that the Missouri utility would continue to "economically retire coal-fired generation" and expand its wind and solar footprint as part of a new five-year strategic plan.

"While we're still targeting 80% reduction in CO2 emissions by 2050, compared to 2005 levels, under this plan we have the potential to reduce CO2 emissions as much as 85% by 2030. A material improvement in our CO2 footprint over the next 10 years," the CEO said.

Management said further coal retirements would likely come in the back half of its plan.

"It would not be closures in the next couple of years," Bassham said.

The company is an advocate for securitization, a financial tool pushed as a way to accelerate the closure of coal by refinancing the debt associated with an existing coal plant.

Charles Caisley, Evergy's senior vice president of marketing and public affairs and chief customer officer, said on an Aug. 5 call that company representatives have talked to legislative leaders in both Missouri and Kansas and believe they have a stakeholder coalition that could move forward with securitization legislation.

When NextEra Energy Inc. executives gathered for their earnings call in July, they touted that subsidiary Florida Power & Light Co. would be among the first utilities to eliminate coal from its portfolio through the closure of Unit 4 at the 3,440-MW Scherer coal plant in Georgia.

"The retirement of Scherer 4 is projected to generate hundreds of millions of dollars in savings for FPL customers and prevent roughly 4 million tons of carbon dioxide emissions annually from this unit," NextEra Executive Vice President of Finance and CFO Rebecca Kujawa said.

Duke Energy Corp., meanwhile, plans to file an IRP in the Carolinas in early September to align with North Carolina's Clean Energy Plan.

"Retirement of coal plants and investment in replacement generation, coupled with investments in battery storage, the energy delivery system, energy efficiency and demand-side management will underpin the state's transition to a cleaner energy future and Duke Energy's investment plan for customers and shareholders," Duke Energy Chairman, President and CEO Lynn Good said on an Aug. 10 earnings call.