US utilities are concerned that they may not have enough railcars to haul coal in the future as multiple power plants are seeking to remain in operation longer than expected.
Power demand is forecast to rise in the coming years because of planned data centers in multiple parts of the country. Many data centers are expected to open before new generation, including natural gas, wind and solar-power units, go into service.
A number of utilities want to avert the temporary power shortage by extending the life of coal-fired power plants beyond planned retirement dates.
In response, demand is "poised to shift to a slight growth in the need for coal cars", according to railcar expert Richard Kloster, president of Integrity Rail Partners. Longer power plant lives as well as expectations of increased metallurgical coal exports are likely to provide demand for equipment.
But the supply of railcars for coal has been slowly shrinking. No new railcars for the coal industry — primarily gondolas or open-top hoppers — have been built in nearly a decade. Utilities and leasing companies have had little interest in ordering new railcars for a shrinking sector.
Many existing cars have also been scrapped, particularly during periods of low coal demand and high scrap prices during the last few years.
There also are thousands of coal railcars in storage, but those do not really count towards demand, Kloster said. The cost of pulling those cars out of storage and making them service-ready is not necessarily cost effective, he said.
About 21pc of North American coal cars were in storage at the beginning of August, up from 15pc in November 2022, according to Association of American Railroads data. In comparison, about 35pc of the coal car fleet was in storage at the start of July 2020, near the height of the Covid-19 pandemic.
Possibilities of new construction
There is a chance that "in the next 10 years, there will be coal cars built again", because many coal cars in the fleet are nearing 50 years of age, Kloster said.
The retirement of many cars means that equipment must be pulled from storage or new units built, driving potential construction.
Under Association of American Railroads (AAR) rules, railcars built after June 1974 can only be interchanged with other railroads for 50 years. After that, those cars are generally limited to operating on only one carrier.
Some of those older cars may be retired early if they need repairs. Maintenance expenses could cause car owners to take units out of service.
Utilities strategize
Some utilities are already implementing plans to secure railcars, but others think taking additional steps will be unnecessary, according to railcar expert Darell Luther, chief executive of rail transportation firm Tealinc.
The differing views are tied in part to whether utilities are regulated by states or merchant-owned, Luther said. Public utilities need to prove to regulators they can meet generating needs, including having enough coal and railcars. Privately owned operators have more flexibility in terms of contracting for coal and railcars.
Several utility rail managers told Argus they do not see the need to take extra steps to secure railcars, confident that they already have plenty or can lease whatever they need in the future.
But other utilities said they have taken steps to ensure they have coal cars in the future.
Some utilities have purchased single or multiple cars as other generators sell them off. Others are increasingly leasing cars, with one utility saying that having more cars than needed is a cheap way of ensuring future supply.
