Coal’s slow burn

by Todd Williams and Stuart Pearman, ScottMadden

Anticipated coal-fired plant retirements spurred by Environmental Protection Agency (EPA) regulations and persistent low natural gas prices continue to increase.

U.S. Coal Fleet–Status of Environmental Controls

There are 986 electric generation coal units in the U.S. with a total nameplate capacity of 307 gigawatts (GW). They generated some 37 percent of 2012 total electric energy, down from 42 percent in 2011. Coal’s share of generation is projected to continue to decline as units come offline and are not replaced.

More than 600 units do not have the requisite pollution controls, including flue gas desulfurization (FGD) or selective catalytic reduction (SCR) installed and are at risk for compliance with proposed EPA rules.

Retirements–What is Order of Magnitude?

Many generation owners have not decided the fate of their coal units. As a result, expert estimates on the total impact of coal retirements sound a little more like Las Vegas odds than fact-based industry analytics.

Most estimates range from 30 to 100 GW, depending on the forecast window. Some 44 GW of U.S. coal unit retirements are believed to be confirmed, based upon announcements and system operations resource plans. The North American Electric Reliability Corp. (NERC) estimates nearly 71 GW of retirements by 2022, with 90 percent of that retiring by 2017.

Of the known retirements, plants are predominantly older with low capacity factors, meaning they do not run often. At retirement, the average plant age is 53 years. The average capacity factor is 34 percent.

Two Primary Drivers of Coal Unit Retirements

Although other considerations exist, there are two key drivers to coal unit retirements: costs associated with compliance to EPA regulations and the low price of natural gas.

Costs associated with compliance to EPA regulations. With the re-election of President Barack Obama, a tsunami of EPA regulations that affect power generation is expected to be promulgated and implemented. Many regulations will be subject to litigation and negotiation, but absent a change in Senate party control, the underlying laws are unlikely to be changed. There are five main rules to consider. Figure 2 summarizes each rule, its status, impacts and requirements.

1. Cooling water intake under the Clean Water Act §316(b). The cooling water intake rule requires units install the best available control technology, which is location- and unit-specific and will require discussion, negotiation and agreement. Compliance might include a closed-loop system with a cooling tower, but it is not necessarily required. Cooling towers are expensive and for some sites pose physical challenges. Entergy estimates building a new cooling tower system at its Indian Point nuclear complex in New York could cost some $1.4 billion. Dominion estimates $600 million for two cooling towers at its Brayton Point plant in Massachusetts.

2. Mercury and Air Toxics Standard (MATS). Compliance with the MATS rule is more expensive and might affect generators most. Southern Co.’s total compliance cost initially was estimated at $2.7 billion during 2012-2014. American Electric Power Co. Inc. has estimated its EPA compliance costs (includig but not limited to MATS) at $4 billion to $5 billion. Some relief, however, came as the November 2012 update to MATS eased the particulate matter standard, which created opportunities to reduce compliance costs. Southern Co. announced the relaxed rule allows it to reduce spending by $900 million by 2014.

3. Cross-State Air Pollution Rule (CSAPR). CSAPR replaced the Clean Air Interstate Rule (CAIR), struck down by the U.S. Court of Appeals for the D.C. Circuit in 2008, but was struck down by that same court in August. The court found the EPA had overreached. In sending CSAPR back for revised rulemaking, the court reimposed CAIR, the same rule it struck down in 2008.

4. Coal combustion residuals (CCRs). CCRs will determine whether coal ash is a hazardous or solid waste. If it is a hazardous waste, economic consequences will include significant compliance expense and a major impact on the gypsum business.

5. New Source Performance Standards (NSPS) for electric generation. Proposed Greenhouse Gas NSPS for electric generation will impose a carbon dioxide cap on emissions from new and possibly certain existing plants. For new plants, although there is allowance for exceedances for the first 10 years, generation owners must commit to installation of carbon capture and storage (CCS). This 10-year window is not deemed practical by industry experts because CCS technology is not commercially viable. The EPA is expected to propose an NSPS rule for existing plants by the end of 2014; however, it made pre-election indications that NSPS would not subject existing plants to onerous caps when major modifications occur. The final rule was expected in April, although the EPA missed this deadline.

Compliance with these rules requires significant infrastructure investment within limited time windows and forces coal generation owners to analyze their potential compliance costs closely. In addition, these rules face legal challenges. Obama’s re-election, however, makes the message clear: There will be increasing environmental restrictions on coal plants.

Low natural gas prices. The second driver of coal unit retirements is the low price of natural gas, which directly affects coal unit revenues. Advances in gas extraction techniques coupled with recent discoveries of large shale gas deposits have driven U.S. natural gas prices to very low levels. According to the Energy Information Administration, the average 2012 price of natural gas delivered to electric power generators was $28.16 per megawatt-hour (MWh), a $3.22 spread per megawatt-hour over the 2012 average annual price of coal delivered–the lowest spread in a decade. With lower operating and maintenance costs, gas plants continued to displace coal plants on the dispatch stack. Economically, the further up the dispatch stack (more expensive), the less likely a unit is to be dispatched, diminishing its revenue potential. Although notoriously inaccurate, most forecasts suggest sustained low gas prices, albeit not as low as seen in 2012; however, the economic challenge to coal generation is expected to continue.


In addition to considering compliance costs and margin contribution impacts, other considerations exist, such as the useful life of the unit.

As one utility executive said, “I couldn’t justify to my ratepayers putting a half-billion-dollar scrubber on a plant whose useful life ends in less than 10 years.”

Coal unit retirements are big decisions. They affect communities, employees and reliability. A mothballed plant can be brought back into service, but many decisions made today are irreversible. Experts at ScottMadden expect the next decade will be busy for coal generation owners and will require expertise in planning, project management, cost analytics, regulatory affairs, environmental compliance and operational excellence. Maintain a questioning attitude–make assumptions and conventional wisdom explicit and challenge them–and constantly consider more than one state of the world.


Todd Williams is a partner and leads ScottMadden’s fossil practice area. Reach him at

Stuart Pearman is a partner and ScottMadden’s energy practice area leader. Reach him at spearman

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