Central US coal spark spreads near historic lows

Market: Coal, Electricity
22/03/22

Profit margins for coal-fired generation in some parts of the US sank to historic lows last week and have held near those lows since then, potentially providing additional support for curbing coal-fired generation.

The greatest hits to profitability were in the Midwest. The peak daily spark spread for 10,000 Btu/kWh coal units at the Indiana power hub reached a record low of -$17.34/MWh on 16 March, a day after the month-ahead margin set a 10-year low of -$4.31/MWh.

In PJM Interconnection West, the day-ahead coal spark fell to -$13.10/MWh on 17 March, which was the fourth-lowest level since Argus began assessing the spread in 2004.

The decreases came as spot Appalachian and Illinois basin coal prices reached their highest levels in more than a decade. Those prices have since declined but remain elevated by historic standards.

Argus assessed prompt month CSX rail-originated coal with 12,500 Btu/lb at $137/st yesterday and April Illinois basin coal at $123/st. At their peak last week, prompt month CSX 12,500 Btu/lb was $138/st and Illinois basin coal was $128/st.

Power prices also declined last week, adding to pressure on coal generation profit margins.

So far this week, coal spark spreads at both the Indiana hub and PJM West have risen, but remain in negative territory. The day-ahead margin at Indiana was -$9.10/MWh yesterday.

In addition, coal-fired generation has dropped in recent days. Some of the decrease is likely because of milder weather, but weakening profitability may also have been a factor.

In the Midcontinent Independent System Operator, coal-fired generation fell by nearly 20pc between 14-21 March to a four-month low of 423,058MW yesterday. Coal power declined by 15pc in PJM over the same time period. Meanwhile, total generation dispatch in those grids declined by 8pc-9pc.

Profit margins in the South also weakened, but not to historic levels. A similar pattern emerged in electric generating regions that consume little or no Appalachian or Illinois basin coal.

In the Electric Reliability Council of Texas North region, where coal plants consume either Powder River basin (PRB) coal or lignite, the peak day-ahead coal spark spread was -$3.93/MWh on 15 March, which was a one-month low. The margin stayed in negative territory the following day but has been positive since then.

While PRB prices remain elevated by historic standards, they have fallen since reaching record levels last year. Last week, prompt month PRB fell to $17/st on 17 March from $17.30/st. In October, the prompt month price was $34.50/st.

By Courtney Schlisserman

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