A bleak outlook for coal in US

New regulations from the U.S. Environmental Protection Agency (EPA) and the low price of natural gas were the two most powerful forces affecting current and planned

U.S.

coal-fired generation in 2012 and 2013. At this point, we see both forces continuing to shape coal generation over the next few years.

The EPA’s Mercury and Air Toxics Standards (MATS) rule, which was finalized earlier this year, remains in a state of flux. This summer, the agency agreed to reconsider the part of this rule affecting new plants for a period of approximately three to four months leaving the reconsideration period to end in November 2012.

The EPA is being asked by both industry and environmental groups to reconsider other parts of the draft rule as well. Because MATS affects every coal-fired (and oil-fired) generator larger than 25 MW, its impact will be felt broadly and deeply across the nation’s coal fleet. Approximately 1,400 generation unit are set to possibly be affected.

MATS full compliance is required by the end of 2015, with the possibly of a year extension on a case-by-case basis; but given the EPA’s reconsideration, and the certainty of coming litigation, we think that the effective date may be pushed back. IIR estimates that 9 to 10 GW of coal-fired generation will be closed by MATS alone. Assuming the regulation survives legal challenges, complying with MATS will require installing activated carbon injection systems, selective catalytic reduction (SCR) units or baghouses on coal units, at an estimated annual cost of $300 to $400 million.

The coal and utility industries won a partial victory this past summer when the D.C. Circuit Court of  ppeals vacated the EPA’s Cross-State Air Pollution Rule (CSAPR). That 2 to 1 decision, reached in August, meant that the regulation CSAPR was scheduled to replace, the Clean Air Interstate Rule (CAIR), would remain in effect until CSAPR was finalized. Nearly 900 coal generating units in over two dozen states would be affected by CSAPR. When fully implemented in 2015, CSAPR (or its successor) will cost the industry an estimated $800 million per year.

Other regulations expected to move forward in the coming year, with impacts on the industry’s compliance spending tab, include the National Ambient Air Quality Standards (NAAQS) for sulfur dioxide (SO2), oxides of nitrogen (NOx), Coal Combustion Residuals (CCR) and updating section 316(b) of the Clean Water Act. These new regulations will be moving to either final proposal or finalization phase in 2013, with effective dates ranging from 2017 to 2020. These looming rules concern emissions of SO2 and NOx, handling and disposal of coal ash and improving power plant water intake systems on a national level. The CCR regulation is currently being addressed by certain electrical generation utilities on a state level. The major driver is the Tennessee Valley Authority (TVA) Kingston Plant ash pond breach in 2008. In their proposed form, these regulations could affect another 9 to 10 GW of generation over the next decade.

Whatever their final disposition, pending EPA regulations drove the premature retirement of thousands of MW of coal-fired generation this year, and we expect that trend to continue in 2013 and beyond. Throughout 2012, utilities announced the retirement of their older, smaller, less-efficient coal-fired generators, typically sized at 150 to 250 MW. Progress Energy, American Electric Power, FirstEnergy, Southern Company, South Carolina Electric & Gas, TVA and Alliant announced early retirements this year.

We expect new air pollution rules, along with other factors, to force the retirement of 30 to 50 GW of coal-fired power plants over the next five years. Most of these units are between 50 and 60 years old and are located in “merchant” power markets, where the sharp decline in natural gas prices has led to widespread coal-to-gas switching. For many plants, the new EPA rules have moved the inevitable retirement timeline forward.

It is not going to be economically feasible to install environmental controls on all of the boilers subject to these rulings. 600 smaller coal-fired units, which total 60 GW, are particularly at risk; and they have yet to address anything beyond NOx emissions. These units typically are 300 MW or less. Currently 225 units totaling 34 GW have formally announced plans to retire by late 2016.

The retirements we expect to see will take place beyond coal units as the regulations also affect Rankine cycle natural gas and heavy oil boilers where heat rates are too high to continue operating and meet these requirements especially in the Southwest. Some boilers in that region have heat rates in the 13,000-plus BTUs per hour kilowatt range. Some of these units will be targets for combined cycle repowering.

(More in Turbomachinery Handbook 2013)