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Coal Loses Out to Cheap Gas, Accounts for 80% of 2015 Capacity Retirements

Of the 18 GW of electric generating capacity retired in the United States in 2015, nearly 80% came from coal-fired units, according to a note published Tuesday by the Energy Information Administration (EIA).

The 18 GW of retirements was “relatively high” compared with recent years, EIA said, reflecting a changing electric grid driven in part by cheap natural gas.

“The main driver of what’s been going on in terms of coal retirements has really been the relative fuel costs,” EIA economist Tyler Hodge told NGI Tuesday, “because natural gas prices have been so low for so long that it’s really been encouraging a switch from coal to natural gas.”

Though about 30% of the retired coal capacity was taken offline in April, coinciding with the rollout of the the Environmental Protection Agency’s Mercury and Air Toxics Standards, regulations have been “more of a secondary factor” in the recent trend of coal-to-gas switching, Hodge said.

While utilities retired over 14.59 GW of net summer coal-fired generating capacity over the course of 2015, they added 6.57 GW of natural gas-fired capacity, EIA data shows. In 2016, utilities are expected to add another 7.76 GW of net gas-fired generating capacity, while 5.57 GW of coal-fired capacity is expected to go offline during the same period.

“Much of the existing coal capacity in the United States was built from 1950 to 1990 during a time when electricity sales were growing much faster than population and gross domestic product,” EIA said. “In more recent years, electricity sales growth has slowed or fallen, and net capacity additions (of all fuel types) have been relatively low. The coal units that were retired in 2015 were mainly built between 1950 and 1970, and the average age of those retired units was 54 years. The rest of the coal fleet that continues to operate is relatively younger, with an average age of 38 years.”

Almost half of the coal-fired capacity retired in 2015 was located in Ohio, Georgia and Kentucky, with each of those states retiring at least 10% of their total coal capacity last year, EIA said.

Natural gas surpassed coal’s share of domestic power generation for the first time ever in 2015, establishing itself as the leading fuel for electricity for the second half of the year (see Daily GPI, Dec. 28, 2015; Dec. 2, 2015; Oct. 28, 2015).

According to EIA’s most recent Electric Power Monthly report, reflecting data through December 2015, natural gas accounted for 109.65 million MWh in December, or 34% of total generation. Coal accounted for 89.65 million MWh in December, 28% of total generation, though coal still powered the largest share of electricity for full-year 2015 with 1.356 billion MWh, compared to 1.335 billion MWh from gas.

In its latest Short-Term Energy Outlook (see related story), EIA said electric power demand for natural gas increased from 22.32 Bcf/d in 2014 to 26.5 Bcf/d in 2015. EIA expects power demand for gas to reach 27.29 Bcf/d in 2016 before falling slightly to 26.82 Bcf/d in 2017.

Hodge said the decrease in natural gas power burn projected for 2017 reflects competition from renewables and the impact of anticipated price increases for gas that would “encourage a little more shifting back to coal.” Many of the remaining units in the coal fleet are “actually operating at really low capacity factors right now,” he said.

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