Coal news and updates

Coal pricing is likely to become increasingly volatile in the next few years as the market absorbs a significant number of coal-fired power plant retirements that would result from the Mercury and Air Toxics Standards rule, a panel of power generation experts said Tuesday at the Platts Coal Properties & Investment conference in Palm Beach, Florida.

 

"I think we're going to see more volatility in pricing as we go forward," said Bruce Braine, American Electric Power's vice president of strategic policy analysis. "It's simply a function of a combination of tighter capacity on the generation side, and we don't have the incentives from the market for keeping marginal coal capacity online."

 

Braine said AEP estimates 60 GW of coal-fired generation will go offline by 2020. AEP alone will have to shut or replace 7,900 MW of coal-fired capacity by 2016, he added.

 

Emily Medine, an analyst with Arlington, Virginia-based energy consulting firm Energy Ventures Analysis, said roughly 35 GW of coal-fired retirements will haven taken place by 2015, which is the deadline for most utilities to shut plants that don't comply with mercury emissions standards.

 

Medine said she expects coal consumption to fall as a result of the closures, partly from increased volatility the retirements will cause in power markets.

 

Medine said the polar vortex and cold weather this winter proved a snapshot of what the power market might look like in the years ahead, with higher natural gas at the city-gates and soaring power prices in markets that rely more heavily on gas.

 

"The polar vortex was the precursor," said Medine. "I've thought after MATS we would move into that world with really high electricity prices, but after Q1 we're beginning to sense the reaction that's it's only going to get worse when those megawatts aren't available, and you really will have electricity shortages and higher prices."

 

The panel said grid reliability will likely hold up, thanks to the ability to curtail electricity usage with demand-response efforts, which should help grid operators avoid rolling blackouts. But it will be tight, the panel warned, and could have a negative impact on coal.

 

"The coal supply chain does not do well on volatile burn," said Medine. "You can't do just-in-time delivery when don't know what to burn."

 

Medine said the issue is compounded by railroads that no longer rely as much on coal revenues and coal producers that can't easily ramp up production to meet demand surges.

 

At the same time, coal is a reliable fuel source that will be called upon to provide increased capacity in periods of peak demand. Braine said that during the polar vortex, the coal-fired units that are slated for retirement ran at 89% of capacity, according to AEP.

 

"One of the problems that really emerged from the polar vortex was the [PJM power market] has become increasingly reliant on demand response and power imports, and problem is, that's not as [a] reliable source as steel in the ground," said Braine, referring to a coal-fired power plant.

 

Source: Platts