BernsteinResearch expects that the EPA’s Mercury and Air Toxics Standards (MATS) will drive the retirement of a net 59 GW of coal-fired generation between 2011 and 2017.
That’s one of the highlights of a March 21 commentary issued by Bernstein. Senior Analyst Hugh Wynne was a lead author of the report for clients.
The coal units being forced into retirement generate 191 million MWh annually. In other words 17% of domestic coal-fired capacity and 11% of coal-fired generation is being affected by MATS.
Taking into account both MATS and the erosion of conventional generation due to the growth of renewables, Bernstein forecasts a reduction in utility demand for bituminous coal of 59 million tons (12%) and a reduction of utility demand for subbituminous coal of 47 million tons (10%) from 2014 through 2017.
It’s important to note that renewable generation growth will also reduce the need to increase the output of the gas-fired fleet to offset the loss of coal-fired generation, “limiting the required increase in utility gas burn, by our estimation, to 2.3 Bcf/day (3%) from 2014 through 2017,” according to the Bernstein analysis.
U.S. coal plants must comply with MATS or close by mid-April 2015, the firm notes. While the compliance deadline for MATS is April 16, 2015, the regulations allow for the continued operation of noncompliant plants beyond this deadline if required to ensure system reliability, the firm said in its analysis.
The EPA standard will probably force sulfur dioxide (SO2) scrubbers for plants burning Appalachian and Illinois Basin coal (bituminous coal) and a combination of dry sorbent injection (DSI), activated carbon injection, and fabric filters for plants burning Powder River Basin coal (subbituminous), the firm notes.
Generators have in many cases determined that the recovery of the capital expenditures required to comply with MATS is unlikely in today’s low power price environment – particularly at older, smaller units whose short remaining useful lives and limited hours of operation materially limit future cash flow. Reflecting this assessment, U.S. generators retired 20 GW of coal-fired capacity in 2012 and 2013 and have announced the retirement of an additional 37 GW of coal fired capacity through 2017, according to Bernstein Research.
“Our analysis suggests that in fact coal plant retirements will exceed the level announced to date,” according to the commentary. As the installation of SO2 scrubbers can take three years, plants burning bituminous coal that do not have scrubbers under construction already will not be in a position to comply with the MATS deadline.
Such plants account for an additional 11 GW of coal-fired capacity, bringing gross expected retirements as a result of MATS to some 68 GW. “Offsetting these losses, a total of 8 GW of new coal fired capacity was added from 2011 through 2013. We therefore estimate the net retirements of coal fired capacity from 2011 through 2017 at some 59 GW,” Bernstein said.
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BernsteinResearch is affiliated with Sanford C. Bernstein & Co.