Coal's status as a baseload fuel has diminished as it competes economically with natural gas and other fuels, but government subsidies of renewables also are playing a part in reduced consumption, a Dynegy executive said Thursday.
US coal consumption, which topped 900 million st for 21 straight years from 1990-2011, dropped to 678 million st in 2016 and could drop 50 million st annually or more in future years as structural changes take hold, Rob Hardman, vice president-fuel supply for the Houston-based utility, said at the Eastern Fuel Buyers Conference in Orlando, Florida.
Wind subsidies are having the greatest impact on Dynegy's plants in Texas, while nuclear subsidies are projected to have an impact on coal-fired plants in Illinois when they take effect in June, Hardman said.
"Coal retirements are going to continue," he said. "The state-based regulatory actions are having an impact "by undermining the effectiveness of a competitive marketplace."
Dynegy burns roughly 30 million st of coal annually at plants in Texas, Illinois and Ohio, but is expected to drop consumption 25% by 2020, Hardman said. At the same time, natural gas generation is expected to increase 50% from 2012-2018, he said. Much of that increase has occurred through acquisitions as Dynegy shifted away from coal, he said.
WIND TAKES HOLD IN TEXAS
Texas coal consumption from the Powder River Basin is down 14 million st, or 24%, from 2012, while lignite coal mined in Texas is down 6 million st, or 15%, Hardman said. "We feel it will continue to fall as long as plants are retired in Texas," he said.
The market is challenging for independent power producers like Dynegy, who buy power in the state off the Electric Reliability Council of Texas electricity market. On peak days where wind supplies over 40% of ERCOT's generation needs, power prices can fall into negative levels, Hardman said.
"If you were generating electricity, you were paying for the privilege," he said.
In PJM markets, which include Dynegy's Ohio plants, coal is chasing Dominion South gas pricing, which has been typically $1 less than Henry Hub pricing, Hardman said. Roughly 20 Bcf/d gas production has been added in the Marcellus and Utica shale region since 2010.
"That gas that is coming on line is directly displacing coal-based generation," he said.
Dynegy's Illinois plants face the greatest challenge from subsidies for nuclear energy, Hardman said.
NUCLEAR 'NEW FRONT' IN WAR ON COAL
Subsidies for nuclear energy are the "new front in the war on coal," Hardman said.
Two states, Illinois and New York, recently granted $2 billion and $7 billion subsidies, respectively, that will put Dynegy's coal-fired plants at risk, he said. The subsidies take effect June 1 in Illinois.
"These are very disruptive new subsidies that are occurring in the marketplace," Hardman said.
The subsidies give an approximately $17/MWh energy credit, or zero emissions credit (ZEC), that has lowered the capacity market price from $77/MWd to $1.50/MWd, he said.
"If these subsidies take hold, we're going to have to retire additional capacity," Hardman said. "We can't compete in a $1.50 capacity market."
For the market, the greater danger lies in other states adopting similar policies, which would put coal further behind on the generation stack and ultimately lead to more plant retirements, he said.
