In addition to the presidential win for Donald Trump and the recent decision by a U.S. appeals court to stay the Clean Power Plan, the coal industry received more good news this week with the U.S. Energy Information Administration’s forecast that use of the fossil fuel will spike during the upcoming winter.
According to the EIA’s weekly review of the nation’s energy industry, coal use is expected to surpass natural gas as the most common electricity generating fuel in December, January and February. At the same time, the Federal’s Reserve’s Beige Book report noted on Wednesday that coal production is up 10% from September levels and slightly higher than a year ago heading into the winter season.
Before last year, natural gas had long been the second-most prevalent fuel for electricity generation behind coal. Since April 2015, natural gas-fired generation has surpassed coal-fired generation in most months since then, reaching record levels this past summer. During the first six months of 2016, natural gas supplied 36% of total U.S. electricity generation compared with 31% for coal.
“After declining for several months, the share of U.S. electricity fueled by coal is expected to slowly begin growing when compared to the same period last year,” the EIA said. “In contrast, the share of generation from natural gas is expected to experience year-over-year declines. Based on expected temperatures and market conditions, coal is expected to surpass natural gas as the most common electricity generating fuel …”
When measured in terms of the cost of fuel it takes to generate a megawatthour (MWh) of electricity, the prices for natural gas and coal were relatively competitive for much of 2015, the EIA said. At the beginning of 2016, the national average price of natural gas was consistently below the cost of coal delivered to power plants, reaching a low point of about $16/MWh in March, while coal has averaged between $21/MWh and $23/MWh for the past two years. Natural gas prices were low earlier this year because of ample fuel supplies and mild winter weather, which also reduced overall electricity demand.
NATURAL GAS PRICES EXPECTED TO RISE
Spot prices for natural gas have generally been rising in recent weeks. The cost of natural gas delivered to electric generators, which includes both spot market and contract purchases, has been increasing as well. The latest available data indicate that the generation cost of natural gas averaged $21.30/MWh in August, nearly identical to the cost of coal.
EIA’s November short-term forecast projects that natural gas prices delivered to the power sector will continue rising. EIA said the average natural gas generation cost to reach a seasonal peak of nearly $31/MWh in February, which would be about 40% higher than the projected cost of coal for that month on a national average basis. Because coal costs vary widely across regions, relative fueling costs in particular markets may differ significantly from national averages.
The higher costs of natural gas relative to coal are likely to encourage the industry to use more coal to fuel electricity generation, the EIA said. Cooler winter temperatures, especially in areas where coal is dominant, also contribute to higher projected coal use in power generation. If winter temperatures are warmer than forecast, natural gas prices would likely stay low, which would reduce the incentive to use more coal-fired generation.
By the middle of 2017, increased generation from renewable energy sources is expected to reduce the generation shares of both coal and natural gas. In July 2017, projected generating capacity from utility-scale solar and wind plants is 57% and 10% higher, respectively, than in July 2016.
COAL INDUSTRY HAPPY WITH TRUMP VICTORY
President’s Trump threats to dismantle both the Environmental Protection Agency and its far-reaching Clean Power Plan has brought a sense of optimism to the coal industry.
In a recent research report, Fitch ratings service said challenges to the plan to reduce carbon-dioxide emissions by 32% within 25 years from the high court or the Trump administration could bode well for the coal sector.
“Reduced compliance costs would benefit all coal-dominant utilities, but particularly those in Kansas, Missouri, Nebraska, Tennessee and West Virginia as they have high electricity costs, high carbon-reduction costs and sizable carbon-reduction goals mandated by the CPP,” Fitch said.
Immediately following the Nov. 8 election, coal industry trade groups praised the election of Donald Trump.
“America awakes to an opportunity to turn away from the costly regulations that have hamstrung our nation’s electric generating capabilities and limited our access to affordable and reliable power,” said Mike Duncan, president and CEO of the American Coalition for Clean Coal Electricity. “We look forward to working with President-elect Donald Trump as he steps forward to lead this great country.”