Unprofitable coal plants now play ‘game of chicken’ to survive, says Bloomberg
Half of U.S. coal plants lost money last year—just like nuclear reactors did
Mar 27, 2018, 1:07 pm
A coal power plant in Utah. CASTLE DALE, UT – OCTOBER 19: A truck delivers coal to Pacificorp’s 1440 megawatt coal fired power plant on October 9, 2017 in Castle Dale, Utah, October 2017. CREDIT: George Frey/Getty Images
Coal power plants are becoming too expensive to operate compared to natural gas and renewable energy, a new report shows.
“Half of U.S. coal capacity ran with net losses last year,” explains a detailed Bloomberg New Energy Finance (BNEF) report, noting that “operating expenses exceeded revenue.” BNEF had similarly concluded last year that over half of U.S. nuclear reactors are bleeding cash.
The marginal cost for operating a coal plant is simply too high compared to both natural gas and renewables in most regions of the country, BNEF explains. Indeed, building and running new renewable energy is now cheaper than just running existing coal (and nuclear) plants in many areas.
“A tide has clearly turned against coal’s energy dominance,” explains BNEF, “gas and renewables have stolen coal’s place” as the cheapest power plants to run.
Solar and wind invariably have the lowest operating costs — you don’t have to pay for sunlight or wind.
Gas plants are cheaper and easier to operate than coal plants.
What had been holding them back for decades was high gas prices. But the shale gas revolution changed that by moving us into an era of sustained low prices for gas.
In recent years, the average coal plant has been on a “shaky economic footing,” the report finds.
The big exception was 2014, as BNEF power analyst and report coauthor William Nelson explained in a phone interview. That year the cold “polar vortex” winter drove up gas usage for heating homes, which in turn drove up gas prices, which made coal very profitable (see chart).
Coal power operating margins have hovered around zero in the last several years–except in 2014, when a cold winter drove up natural gas prices.
So, it’s no surprise that coal plants are shutting down at a faster rate under President Trump than they did during President Obama’s first term.
One reason coal plants aren’t shutting down even faster is that, as the report states, “There is also a ‘game of chicken’ being played by neighboring coal operators.”
Every time a coal plant shuts down, the nearby plants all become a bit more profitable.
With less competition, they now have a greater chance of being dispatched during times of peak demand and operating margins improve.
Thus “the reward for ‘outliving your neighbor’ factors into retirement decision.”
Another factor keeping unprofitable plants alive is that, in regulated markets, all plants are guaranteed a profit.
The result, as Nelson explains, is that “consumers pay for uneconomic coal plants,” at least until regulators decide a plant simply isn’t needed anymore.
But the report makes clear the outlook for coal is grim.
The average coal plant ran just under half the time in 2016. This is compared to 2008, where the average was two thirds of the time.
Indeed, while coal power was designed to be used as 24-7 baseload, “in New England coal has devolved into backup capacity,” the report notes.
BNEF goes on to warn, “This progression (‘baseload to backup to phase-out’) characterizes coal plants’ lifecycles.”
Finally, while natural gas prices will always fluctuate, solar and wind power continue to get cheaper and cheaper.
As Nelson put it, “what’s scary about renewables is that they are irreversibly bad for coal.”