The John E. Amos power plant just outside Charleston, W.Va., has an operating capacity of 2,900 MW. The plant has been operating for over four decades.
Source: S&P Global Market Intelligence
U.S. coal production paused a yearslong, sharp decline through most of 2017, but the sector still faces the challenges of a rapidly aging customer base.
Nearly 70% of the coal delivered in the 12-month period that ended Oct. 31, 2017, went to coal-fired power plants that were at least 38 years old, according to an S&P Global Market Intelligence analysis of U.S. Energy Information Administration data. About 55.2% of coal deliveries reported to the EIA were delivered to coal plants that are between 38 and 54 years old.
While coal producers enjoyed a boost from export markets in 2017, coal plant retirements have continued at a steady pace. Meanwhile, the existing fleet has been used less, as low natural gas prices and other competing sources of energy have kept a tight lid on thermal coal demand in the U.S.
Joe Aldina, director of U.S. coal at PIRA Energy Group, an analytics and forecasting unit of S&P Global Platts, called it the sector's "aging out" problem. A "big chunk" of the coal fleet will only be able to reliably operate for another 10 to 15 years, he said. Meanwhile, operators increasingly cycle equipment on and off in response to demand, which can be tougher on a power plant.
While the average age of the U.S. coal fleet is about 39 years, only 30.2% of U.S. coal deliveries reported to the EIA went to power plants that were 37 years old or younger. There is no "magic date" for when a coal plant must retire due to its age, but a typical assumption is slightly more than 60 years of operation, said Matt Preston, research director for Wood Mackenzie's North America thermal coal markets.
"The plants get older, but their heat rates don't get worse," Preston said. "So, the economics don't necessarily get worse because a plant gets older."
However, plants that are much older are likely less efficient and more susceptible to going offline as more natural gas capacity is added to the power grid, he said. He projects it is unlikely new coal plants will be built in the future based on current market conditions.
"[A regulated utility's] ultimate job is to serve their customers and their stockholders," Preston said. "If you can get those two things together — serving customers the way they want to be served and serve your stockholders — then utilities are going to be all for that. In this case, if customers are interested in renewables or doing away with coal, or switching away from coal, and willing to pay for it, then the utilities are going to be for that."
American Electric Power Co. Inc. operates the John W. Turk Jr. (top) and John E. Amos (bottom) power plants from their respective control rooms. The Amos plant was built nearly 50 years ago, while the Turk plant is among the newest in the U.S. coal fleet.
Source: S&P Global Market Intelligence
Moody's recently sent a note to investors warning that coal production in the U.S. will continue a steady, secular decline without policy support and continued investment in carbon capture and storage technology. Moody's vice president and senior analyst Anna Zubets-Anderson wrote that investment in the technology has been lacking as the U.S. and other countries have shifted away from coal in favor of generating electricity from other sources.
"The continued development of carbon capture and storage could be a game-changer for U.S. coal producers in the long run, in that it could slow the industry's decline," Anna Zubets-Anderson said. "However, while many technological barriers to increased deployment of CCS have been lifted, policy support and investment have been lacking."
Moody's said coal does play an important role in grid reliability and fuel diversity of the nation's grid, however, and those factors could lead to a material change in price dynamics between coal and natural gas that could shift the trend. Trevor Houser, a partner with the Rhodium Group and former senior adviser to the U.S. Department of State, said it is "almost impossible" to make the economics of a new coal-fired power plant work in today's market.
"A new power plant built today will be around much longer than any single president," Houser said. "It would take a pretty cavalier utility CEO to bet billions of ratepayer dollars that the U.S. will never again look to address climate change at the federal level."
Any new coal-fired power plant would also face numerous permitting, political and other hurdles before being built.
While operators of the relatively new Longview Power LLC coal-fired plant in West Virginia have touted its ability to compete thanks to advanced technology that burns coal more cleanly and efficiently, no one has followed the lead of the company, which filed for bankruptcy before it went online. Other power plant projects, such as Southern Co.'s failed attempt to build a coal plant with carbon capture, have proven costly.
The nation's largest coal producer, Peabody Energy Corp., has said it believes that coal demand in 2018 will be somewhat stable, as a higher expected capacity utilization might offset retirements it said were "on track" with its projections. The Sierra Club's Beyond Coal campaign, which advocates for retiring coal plants, expects 2018 to be its second most productive year.
"We're expecting a lot of reduction in coal burn," said Bruce Nilles, who recently stepped down as senior manager of the campaign. "At the same time, demand is flat and clean energy keeps getting built at a record pace."
S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.