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Coal’s chief customer reluctant to buy into revival

09 Jun 2017 19:54 (+01:00 GMT)
Coal's chief customer reluctant to buy into revival

Washington, 9 June (Argus) — President Donald Trump will need buy-in from electric utilities if his goal of revitalizing the coal industry is to become a reality. So far, he is not getting it.

Power producers are coal's biggest customers in the US, purchasing 86pc of the industry's output last year. Some of the largest users say they still plan to rely more on natural gas and renewable energy sources to produce electricity, despite Trump's recent steps to boost the coal sector.

"The simple answer is the administration's decisions on issues like the Paris accord and Clean Power Plan will not have any impact on Tennessee Valley Authority (TVA)," the utility, the third-largest US coal buyer in 2016, said. TVA, which is based in Knoxville, Tennessee, and serves nine million people, is moving forward with plans to diversify its portfolio by buying less coal and more renewable energy.

Trump last week said the US will withdraw from the Paris climate accord in part to retain the US coal jobs. "The agreement does not eliminate coal jobs, it just transfers those jobs out of America and the US, and ships them to foreign countries," Trump said in a Rose Garden ceremony announcing the withdrawal.

His administration is also moving to block the Clean Power Plan, a regulation finalized by former president Barack Obama that would force utilities to reduce their CO2 emissions.

Trump's efforts could pay dividends for the industry eventually. The US Energy Information Administration projected US coal production at 861mn short tons (781.1mn metric tonnes) in 2040 without the Clean Power Plan, compared with 619mn st with it.

But utilities appear to be moving forward with plans to retire older coal units in the face of competition from natural gas and renewables. Cheap, abundant natural gas remains a particular threat.

"Coal has problems, but the Paris deal really is not one of them," said Daniel Scott, an analyst with MKM Partners in Connecticut. "Natural gas remains the biggest headwind."

DTE Energy, the nation's 10th largest coal buyer, announced in May that it would cut its greenhouse gas emissions 80pc by 2050. That will require adding 6,000MW of renewables and moving forward with previously announced plans to close eight coal units by 2023.

PacifiCorp, the nation's fifth-largest coal buyer, is also moving forward with plans to retire 3,650MW of coal-fired capacity by 2036. The company said Trump's withdrawal from the Paris climate agreement will not affect its plans.

Federal environmental polices "are just one of many factors that go into our long-term generation planning," Southern Co. subsidiary Alabama Power said. Parent company Southern Co. is the nation's second-largest utility buyer of coal, behind Luminant, based in Texas.

Utilities also have to keep in mind projections on generation resource costs, which in recent years have made natural gas and renewable power more attractive, as well as public opinion and the potential that federal policies could shift back after the next election.

State policies are another factor. States including California and Washington last week pushed back against Trump's plans to exit the Paris accord by pledging to mandate carbon cuts of their own.

Ohio-based utility American Electric Power (AEP) is taking into account the "needs and expectations of our customers" in its strategy of investing in more renewable generation and reducing CO2. AEP bought about 12.1mn st of coal in 2016, putting it among the top 15 coal buyers in the country.

"That strategy is not changing with the president's decision for the US to leave the Paris agreement," AEP said.

In the southwest, Arizona utility Salt River Project (SRP) is also sticking with a carbon intensity reduction commitment that it developed in 2013, even before the US signed on to the Paris agreement.

It plans to cut its fleet's carbon emission intensity by 40pc from 2014 levels by 2044. That should lead to a "meaningful reduction" in coal as a portion of its generation portfolio, the company said.

Trump this week heralded the opening of a Pennsylvania mine that will produce coking coal for making steel. But unless he can convince electric utilities to buy coal in larger quantities, he will not have many more mine openings to celebrate.