The U.S. Department of Energy is reportedly developing a plan to build small-scale coal-fired power plants, as coal producers continue to face operating challenges prompted by declining demand.
Steven Winberg, assistant secretary for fossil energy at the U.S. Department of Energy, told Axios that the coal sector, which has rapidly declined in production volume in recent years, could survive if the smaller power plants are successful. Winberg suggested the plants may represent a "paradigm shift" in a market that has been rapidly moving from coal to natural gas and renewable energy generation.
However, Matt Preston, Northern America coal markets research director for Wood Mackenzie, said such small, specific applications are unlikely to do much to offset a secular decline in coal consumption in the U.S., where a natural gas plant can be built for a "very small fraction of the cost" of a new coal plant.
"There's a place for that, but to build it like distributed energy, there are efficiency issues," Preston said. "There's a reason why coal plants are so big — because of economies of scale. If you try to move one railroad car of coal versus 100, there's a huge difference in price."
The plan comes as coal producers continue to struggle from weak domestic demand for coal-fired power generation and competition from low-priced natural gas that have adversely affected the capital structure of some coal mining companies. Westmoreland Coal Co. announced this week that it has hired advisers to help it improve the health of its balance sheet, and S&P Global Ratings lowered the company's credit rating to CCC- from CCC, citing a potential default or restructuring within six months after the company disclosed "substantial doubt" to its ability to comply with its covenants during the year ending Sept. 30.
Westmoreland CFO Gary Kohn said in a March 7 release that the coal producer continues to work on dealing with the debt of its San Juan operation and of Westmoreland Resource Partners LP as it seeks "a holistic solution for all of Westmoreland." The master limited partnership announced that it is exploring a restructuring transaction that would transfer collateral to its term-loan lenders.
The U.S. Energy Information Administration in its latest "Short-Term Energy Outlook" projects coal will supply 28.6% of the nation's power in 2018, to natural gas' share of 33.9%.
NACCO Industries Inc. said in a March 7 earnings report that although current regulatory environment for developing new coal projects has improved, low natural gas prices and growth in renewable energy sources could unfavorably affect the amount of electricity generation attributed to coal-fired power plants over the long term, adding that opportunities for new coal mining projects in the U.S. are likely "very limited."
The company reported consolidated income from continuing operations of $9.7 million, or $1.40 per share, in the fourth quarter of 2017.
The weakening domestic coal market has also pushed Foresight Energy LP to increase its focus on exports. The partnership this week reported a net loss of $74.2 million, or 49 cents per unit, in the fourth quarter of 2017.
On the brighter side, proponents of carbon capture believe that the extension of federal tax credits for the technology could open up a tax equity market that might help spur the development of projects in the U.S.
Companies with large tax liabilities might sponsor or partner with a smaller developer of carbon capture technology in order to reap the tax rewards, a model that has been successful in the renewables sector.
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