Denver — As natural gas storage surpasses five-year maximum levels in the US Midwest, a swath of coal and nuclear power plant retirements look to boost gas' share of generation winter over winter, helping balance a towering inventory despite higher hub prices in the region.
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About 70 MWh of coal-fired capacity has retired since last winter with another 173 MWh offline by the end of this upcoming winter in the Midcontinent Independent System Operator and Southwest Power Pool, according to S&P Global Platts Analytics. This pales in comparison though to the 619 MWh of nuclear generated capacity lost this year. Overall, these losses should provide more opportunity for gas-fired generation in the region.
Last winter power burn exceeded expectations thanks to low cash prices. Chicago averaged just $1.90/MMBtu last winter, down from an average of $3.00/MMBtu the past five years. This incentivized greater coal-to-gas switching and boosted power burn in the Midwest to 3.8 Bcf/d. This winter, Platts Analytics expects stronger prices to weaken power burn by a sizable 595 MMcf/d from last winter in the region.
However, these winter-over-winter losses could be mitigated in part by the retirement at the Duane Arnold Energy Center in Iowa. Duane Arnold was Iowa's only nuclear power plant and ran from 1975 to August 2020. The plant was scheduled to retire at the end of October, but the plant could not restart after heavy El Derecho rains in early August, pushing the retirement earlier than expected.
The nuclear plant had a nameplate capacity of 619 MWh. US Energy Information Administration data, however, showed the plant averaged 445 MWh in the winter of 2019 and 2020 and hit as high as 456 MWh in January 2020. This lost generation could help boost power burn by 85 MMcf/d if gas fills in for all of the lost nuke output.
The region has also seen smaller coal retirements with 129 MWh lost with the JB Sims and TES Filer City Stations in Michigan during the first half of the year. The loss of another 173 MWh is expected with the closure of the Dallman coal-fired power plant in Illinois later this year. Last winter both ran below their nameplate capacity, with JB Sims averaging 22 MWh out of its 68MWh capacity, TES Filer City at 34 MWh of 61 MWH, and Dallman at 81 MWh of 173 MWh. While these plants present a combined 302 MWh of nameplate capacity, only 138 MW was utilized last winter. The lost coal-fired capacity could boost power burn by 26 MMcf/d.
Platts Analytics forecasts power burn to decline this year from last assuming normal temperatures and stronger prices. The EIA, however, estimates 22% of the Midwest primarily heat their home with electricity while 20% also use it as a secondary heating source. The loss of generation from coal and nuclear retirements this winter will therefore provide a substantial upward risk to Platts Analytics winter power burn forecast. The region also has a surplus of gas in storage to draw upon, with levels towering above the five-year maximum since August.
Cooler winter-over-winter temperatures would only further boost power demand, exacerbating the effects of these retirements. The National Weather Service forecasts Midwest temperatures to be slightly cooler than normal for winter 2020-21.
Although higher prices are likely to cut into gas-fired power demand this winter, coal and nuke retirements, along with cooler temps, should help to gas demand in the region. However, cooler-than-normal weather is not expected until at least November as the latest forecast shows Chicago will average 2 degrees above average for the month of October. This should place negative pressure on Chicago prices.
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