More than half of public power coal-fired plants remain competitive, Moody’s analysis says
Energize Weekly, May 2, 2018
A little more than half of the coal-fired power plants operated by public power utilities and generation and transmission cooperatives are economically competitive, though several are at risk, according to Moody’s Investor Service analysis.
“Coal-fired generation in the U.S. remains under pressure due to coal’s lack of competitiveness against natural gas and even renewable energy in some regions,” according to Moody’s analysis of the 113 largest plants. “Many utility owners are having to adjust their supply portfolio to adapt to the changing market.”
Moody’s said that a set of coal-fired plants will continue to play a role in supplying electricity, particularly newer units with lower operating costs. These plants will continue to perform economically and provide “credit stability” for their owners.
“Newer units that became commercial after 2000 use more efficient technology and run at lower heat rates and operating costs, enabling many of them to be competitive with the market and thus achieve higher capacity factors,” the analysis said.
The remaining coal plants are older with higher operating costs, putting them “at-risk” of being displaced by cheaper renewable energy sources and natural gas generation. “Low forward power prices and dark spreads—gross margins after fuel costs—suggest the environment for coal plants will continue to be difficult,” the report said.
Moody’s identified 63 of the 112 public power and cooperative plants that remain competitive using the metrics of operating cost, with $30 a megawatt-hour (MWh) as a threshold after which units may be vulnerable, and the plant’s capacity factor, indicating how much it is run. The Moody’s analysis said a factor of at least 50 percent showed a plant is competitive.
Based on these metrics the top performer is the Wygen 1 plant in Gillette, Wyo., which was built in 2003 by Black Hills Energy. The Municipal Energy Agency of Nebraska has a share in the plant.
Wygen 1 had 2016 production costs of $15.48 per MWh and a capacity factor of 94 percent.
The second most competitive plant was the Milton R. Young plant in Center, N.D. operated by the Minnkota Power Cooperative, with operating costs of $19.12 a megawatt-hour and a 91 percent capacity factor. While the Young plant dates back to 1970, between 2006 and 2011 about $425 million was invested in pollution controls.
“As market conditions evolve, however, the competitiveness of some of these plants could come under pressure, depending on how they compare on a relative cost basis with other generation sources,” the analysis said. “Factors in the broader environment, including the price of natural gas and renewable energy in the vicinity, regional transmission organization (RTO) reserve margins, and the extent of political support for various fuels, can all influence the competitiveness of plants.”
The analysis identified eight plants “facing potential pressure” going forward. Most at risk is the Dallman Station 4 plant operated by the city of Springfield., Ill. The unit, which went into operation in 2009, has an operating cost of $39.24 a MWh and a capacity factor of 44 percent.
The Arkansas Electric Cooperative’s Flint Creek plant, built in 1978, was the second most at-risk plant with an operating cost of $34.03 a MWh and a capacity factor of 44 percent.
“We consider $30/MWh in operating costs to be a threshold above which coal plants are vulnerable to be displaced by a combination of natural gas and renewables. We refer to such plants as being ‘at risk,’” Moody’s said.
About 25 gigawatts (GW) of plants had operating costs below the threshold, 39 GW had operating costs between $30 and $40, 14 GW between $40 and $50, 8 GW between $50 and $60 and 4 GW with operating costs above $60.
“When coal plants can be retired and replaced with a cheaper resource, utilities may even be able to reduce customer rates. For this reason, there may actually be pressure on utilities to retire coal plants where opportunity for such savings exist in order to provide the lowest rates possible to their customers,” the analysis said.