US coal in decline: New Brattle Group report on coal-fired power plant retirements

On October 1, 2012, the Brattle Group published an update to its 2010 numbers on coal-fired power plant retirements, and it “finds that 59,000 to 77,000 MW of coal plant capacity are likely to retire over the next five years, which is approximately 25,000 MW more than previously estimated”.

The news release for the study states

Since December 2010 when the prior estimates of potential coal plant retirements were released, both natural gas prices and the projected demand for power have decreased, and environmental rules have been finalized with less restrictive compliance requirements and deadlines than previously foreseen. These shifts in market and regulatory conditions have resulted in an acceleration in announced coal plant retirements. As of July 2012, about 30,000 MW of coal plants (roughly 10% of total U.S. coal capacity) had announced plans to retire by 2016.

The updated study takes into account the most recent market conditions and the shifting regulatory outlook facing coal plants. To reflect the remaining regulatory uncertainty, the authors developed both “strict” and “lenient” regulatory scenarios for required environmental control technology. About 59,000 MW will likely retire under lenient rules versus 77,000 MW under strict regulations. Final regulatory requirements are still unresolved, but the authors suspect they will be akin to the lenient scenario. The study highlights that retirement projections are even more sensitive to future market conditions than to regulations, particularly natural gas prices. Likely coal plant retirements drop to between 21,000 and 35,000 MW if natural gas prices increase by just $1.00/MMBtu relative to April 2012 forward prices. Similarly, projected coal plant retirements would increase to between 115,000 and 141,000 MW if natural gas prices were to decrease by $1.00/MMBtu.“

Coal will continue to decline in importance in the US in the medium term, and it isn’t principally because of environmental regulations.  Of course, regulations are getting tighter, but cheap natural gas is the main culprit.  In addition, few new coal plants are likely to be built to replace the retiring plants.  Instead, natural gas and wind plants will likely pick up most of the slack.

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