US coal demand to fall despite retirement shift

Coal demand in the US may continue its downward trend in 2024 even though fewer power plant units are scheduled to close and some retirements have been delayed.

Coal-fired power plant unit retirements in 2024 are projected to number between six and eight, according to US Energy Information Administration (EIA) estimates and company announcements recorded by Argus. That is down from 22 units permanently closed in 2023.

The current expectation for 2024 coal plant retirements also is slightly lower than what the EIA was projecting at the start of 2023. In addition, four fewer coal units closed in 2023 than had been expected at the start of the year. Some power plant retirements have been delayed or have been flagged by grid operators as temporarily necessary for grid reliability.

But market fundamentals, including more competitive natural gas prices and expanding renewable generation capacity, are expected to continue to be less supportive of coal-fired generation and coal demand this year.

"There's a lot of questions that go into these coal unit [retirement] delays, including how long grids need these units to continue operating during peak demand," said Ian Lange, associate professor at Colorado School of Mines. "It could just be for a few hours or a few days in the winter... but the short period of operation makes me think it will probably not significantly impact coal demand."

The latest projections from the EIA have coal consumption by US electric power plants falling by 10pc this year to 346.5mn short tons (314.3mn metric tonnes).

The biggest shift in coal retirements in 2023 appears to have been in the PJM Interconnection. The grid operator initially had 11 coal units retiring in the first half of 2023, taking a combined capacity of 5,681.2MW offline. But two of those unit retirements were withdrawn after Omnis Fuel Technologies in August reopened the 1,200MW Pleasants power station in West Virginia with plans to eventually add technology to extract hydrogen from coal and run the plant on hydrogen.

For 2024, PJM so far has only one plant scheduled to close, AES' 180MW Warrior Run plant, according to the generation deactivations page on the grid operator's website.

Two coal units in the Midcontinent Independent System Operator (MISO) — WEC Energy's South Oak Creek units 5 and 6 — are expected to close in 2024. WEC previously was expected to also retire South Oak Creek units 7 and 8 in 2024, but announced in June 2022 that it was going to extend operations of those units until "late 2025."

Elsewhere, Duke Energy delayed retirement plans of the remaining two coal units of the GG Allen plant in North Carolina to "by 2025" instead of the end of 2023. And the Federal Energy Regulatory Commission recently approved plans for MISO to extend its system support reliability agreement with Ameren's Rush Island plant in Missouri until at least 1 September 2024. MISO also has asked for permission to extend the reliability agreement it has with Manitowoc Public Utilities' Lakefront 9 plant in Wisconsin beyond its 31 January 2024 expiration date.

PJM has also identified some potential reliability issues that would affect zones that stretch into six states in the grid if Talen Energy were to deactivate the Brandon Shores power plant in 2025, shutting down 1,281.6MW of generating capacity.

Many utilities are likely to use units they have extended retirement dates for as reserve capacity for peak demand seasons instead of using them as baseload generation, Lange said. Some generators already have been operating older coal units at lower rates both because of market conditions as well as environmental regulations. They also are girding for potential tighter regulations in the future.

Even if utilities use the units more frequently, they may have little need to make significant coal purchases. Inventories at most power plants remained above normal going into 2024, following lower than expected coal-fired generation and consumption in 2023.

Coal-fired generation in PJM and MISO has lagged behind year-earlier levels from January-November, while natural gas generation rose for nearly all of 2023 because of lower prices and increased capacity. Average renewable generation fell slightly from year earlier levels even though generators installed more wind, solar and other technology.

In addition, some utility buyers have asked producers to stall shipments that were scheduled for 2023. That, along with other market fundamentals, will likely offset any increase in coal-fired generation that could have been expected from the slower capacity cuts.

By Anna Harmon