As renewable energy sources increasingly displace coal-fired power generation in Texas, the state's lignite producers and Powder River Basin thermal coal miners could see a key market dry up.
Wind and solar are entering the grid "at very low price points," and if natural gas remains cheap, more coal-fired generation will likely be driven into retirement, especially older plants with higher operating costs, said Fred Beach, assistant director for policy studies at the University of Texas at Austin's Energy Institute.
"This has nothing to do with politics," Beach said. "This is just pure economics."
Beach estimated that Texas coal mining will shut down entirely within a decade if plant retirements continue. The state's low-quality lignite coal is not valuable enough to pay to transport, and production is already dwindling, with North Dakota surpassing Texas in the first half of 2018 as the largest U.S. lignite producer.
In the first 10 months of 2018, five Texas mines sent all their coal to generators in the state, totaling 19.5 million tons, according to data compiled by S&P Global Market Intelligence.
While a shrinking demand for coal would be a blow to Texas mining companies, Wyoming coal producers would also take a hit.
Peabody Energy Corp.'s Rawhide mine sent 6.5 million tons to Texas coal plants during the period, accounting for 69.3% of its total deliveries, the largest percentage among Wyoming producers. The company also sent about 1.9 million tons, or 20% of deliveries, from its Caballo mine and 6.5 million tons, or 8.6% of deliveries, from its North Antelope Rochelle mine through October 2018. Texas plants bought 38.1% of the coal Arch Coal Inc.'s Coal Creek mine delivered during the period and 12.7% of its Black Thunder operation's coal.
Cloud Peak Energy Inc., a pure-play Powder River Basin producer that is considering a sale as its market value and stock price continue to plunge, shipped 1.5 million tons of coal from its Cordero Rojo mine to Texas plants, about 21.5% of deliveries during the period. Its Antelope coal mine sent 2.4% of its coal deliveries, about 490,000 tons, to Texas.
Joshua Rhodes, postdoctoral research fellow at the UT-Austin Energy Institute, said Powder River Basin producers are "getting squeezed" as the nation moves away from coal power and the existing fleet ages. Some western producers are also unable to take advantage of the export market, a recent bright spot for the sector, as proposals to build West Coast coal export terminals remain tied up in the court system.
"Any time Wyoming is going to export less coal, it's going to take a hit to their GDP," Rhodes said when asked about the impact to Wyoming producers if Texas utilities phase out coal. "It doesn't seem like that there's much place else for it to go, so that sector would probably have to contract."
Solar "could really be the coal killer," said Daniel Cohan, an associate professor at Rice University's Department of Civil and Environmental Engineering, because coal is used to produce more power during the day and then ramped down at night, coinciding with solar's peak generation. A Rice study published in November 2018 determined that pairing the state's solar and wind resources could create a power source as firm as coal.
"Given the natural gas and nuclear resources that you've already got on the grid," said Cohan, who co-authored the study, "it would certainly be possible to build out enough wind and solar power within five to 10 years that coal would no longer be needed."
A commissioner with the Railroad Commission of Texas, which regulates the state's coal mining sector as well as oil and natural gas, said that while coal continues to be "arguably the cheapest source per Btu of mined product," people have stopped building expensive coal-fired power plants. The existing coal fleet is still affordable and reliable, Commissioner Ryan Sitton said, but natural gas especially will phase out coal over time.
While data from S&P Global Market Intelligence showed that none of Texas' remaining coal-fired units are retiring in 2019, American Electric Power Co. Inc. has confirmed plans to retire its 650-MW Oklaunion plant in 2020.
Michael Nasi, an Austin-based partner with Jackson Walker LLP who practices environmental and energy law, said he is concerned Texas' renewable generation and battery storage cannot keep up with peak demand on hot summer days. He said the state has enough newer plants that he expects coal-fired generation will survive "well into the 2030s."
"All-of-the-above isn't just a sound bite," Nasi said. "It's an actual essential component of running the electric grid."