Coal-fired generation profit margins in much of the US are exiting the peak summer power demand season on a slightly more even playing field with natural gas than a year ago.
Argus has assessed peak season dispatch of 10,000 Btu/lb coal units into the PJM Interconnection West, Indiana, Northern Illinois and Electric Reliability Council of Texas North power hubs at an average of $3.77-$13.35/MWh below 8,800 Btu/lb natural gas units from 29 June, when the peak season switched to the fourth quarter, to 21 July. In the same period of 2022, peak season coal dispatch was assessed at $7.23-$50.79/MWh below gas generation at those power hubs. There has been a similar pattern for coal day-ahead spark spreads over natural gas.
Coal still is at a disadvantage to natural gas in the generation merit order on both a day-ahead and prompt season basis. In the Midcontinent Independent System Operator (MISO) – which has the most US coal units – the daily coal spark spread at the Indiana power hub has averaged $11.58/MWh since 29 June, while the seasonal margin averaged $18.22/MWh. That compared with $24.35/MWh and $30.51/MWh, respectively, for gas units. But a year ago the day-ahead and prompt season gas spark spreads were at least double the coal margins.
In most cases, delivered coal prices have fallen by a greater amount than natural gas prices have, explaining at least some of the narrower difference in spark spreads.
While both coal and natural gas prices are below year-earlier levels, a drop in freight rates has helped bring the delivered cost for some coals closer to natural gas prices. For example, on 19 July Argus assessed Illinois basin and Central Appalachian coal delivered to southwest Ohio at 88¢-$1.68/mmBtu above the Colombia Gas Appalachia day-ahead price. A year ago, the delivered price for those coals was more than $2.10/mmBtu more expensive than natural gas.
Powder River basin (PRB) coal prices have fallen less dramatically than other coal markets over the past year. So, in at least some regions, it has flipped to being a more expensive fuel than natural gas for generation dispatch.
Within MISO, PRB 8,800 Btu/lb coal was assessed as being delivered to St Louis at $2.33/mmBtu on 19 July, while the day-ahead natural gas price at the Chicago Citygates was $2.313/mmBtu. A year earlier, those assessments were $2.64/mmBtu and $7.415/mmBtu, respectively.
In Texas, where much of the state has sweltered through above-average temperatures since late-June, PRB coal on 19 July was assessed as being delivered to the Electric Reliability Council of Texas (ERCOT) at $2.788/mmBtu while the day-ahead Natural Gas Pipeline Texok zone was $2.293/mmBtu. A year ago PRB coal was $3.124/mmBtu and the Texok zone was $7.21/mmBtu.
Still, the difference between coal and gas peak season spark coal spark spread in ERCOT North narrowed to an average of -$13.34/MWh 29 June to 21 July from -$23.39/MWh a year earlier.
Despite the more limited difference in coal and gas generation profit margins, gas-fired generation has topped coal across the US and is expected to continue to do so in coming months given ongoing coal plant retirements.
Earlier this month, the US Energy Information Administration projected coal-fired generation in PJM, MISO and ERCOT would be lower next quarter than a year earlier and would lag natural gas in all three grids. In the same period of 2022, coal topped natural gas in MISO.
