Brattle paints grim picture for coal, predicting up to 67 GW in plant retirements

Brattle paints grim picture for coal, predicting up to 67 GW in plant retirements

by Wayne Barber,  SNL Financial, December 8, 2010

Experts continue to paint a grim picture for coal-fired generation, as a recent study by The Brattle Group predicts more than 50,000 MW of coal capacity will be retired in the coming years and the industry will spend up to $180 billion for remaining plants to comply with expected mandates from the U.S. EPA.

In the study, Brattle economists Metin Celebi and Frank Graves estimated that 40,000 MW to 55,000 MW of coal capacity — depending on the cost of retrofits — would retire if scrubbers and selective catalytic reduction equipment were mandated by 2015 for all coal units. Another 11,000 MW to 12,000 MW could retire if cooling towers are also mandated. This would bring the total retirements to between 50,000 and 67,000 MW, or roughly 20% of installed coal plant capacity, the consulting firm said in a Dec. 8 news release.

The result would devastate the merchant coal fleet. The Brattle economists predicted 47,000 MW to 56,000 MW, or up to three-quarters of the entire merchant coal fleet, would be hit. There would be fewer retirements of regulated coal plants, which can often recoup compliance costs through rates.

The retirements would be especially large in the Midwest ISO, Electric Reliability Council of Texas Inc. and PJM Interconnection LLC areas, representing up to 72% of all coal plants and up to 15% of total installed generating capacity, Brattle said.

For the units that would not retire, complying with EPA's potential rules to install scrubbers, SCRs and cooling towers would require investments in the range of $100 billion to $180 billion. The combination of retirements and increased costs would reduce coal demand about 15% by 2020, Brattle said.

Gas demand, on the other hand, could increase by up to 5.8 Bcf/d, or approximately 10% of total gas use. Assuming that all of the lost generation from coal would be replaced by gas-fired, combined-cycle plants, carbon dioxide emissions could fall by 150 million tons per year, or about 7% of all CO2 emissions from the electric power sector, the study said.

Brattle is far from the first industry observer to predict that a combination of EPA rules and cheap gas could spell trouble for coal units. American Electric Power Co. Inc. President, Chairman and CEO Michael Morris, among others, addressed the issue earlier this year, and Black & Veatch Corp. recently said gas could pass coal as the top power generator by 2035. Black & Veatch suggested 52,000 MW of coal capacity could find it cheaper to retire than retrofit.

But Brattle goes further in its study. "In contrast to other studies projecting that mostly old and small coal units are at risk for retirement, our analysis finds that roughly one-third of the retirements will be from power plants that are less than 40 years old and larger than 500 MW, resulting in significant challenges for the coal industry as a whole if the EPA regulations pass as expected," Celebi said.

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