Coal Plants with Higher Operating Costs More Likely to Retire Due to Competitive Natural Gas Prices

The U.S. Energy Information Administration (EIA) conducted a study to better predict the Annual Energy Outlook (AEO) and found that coal plants with higher operation and maintenance costs retire at greater rates compared to plants with lower costs. The relatively low price of natural gas has made natural gas-fired generators competitive with coal-fired units, which has led to a decline in coal-fired capacity. EIA reports that a decline in use of coal-fired units “leads to a decline in revenues at a plant, which generally translates to lower operating margins, less ability to cover costs, and in many cases, retiring that capacity.”

EIA found that “in general, the group with the lowest variable operating and maintenance costs tended to run more often, which resulted in higher capacity factors. Capacity factors reflect a power plant’s electricity output as a percentage of its generating capacity. As natural gas prices fell and coal use decreased, capacity factors at coal-fired power plants fell from 75% in 2008 to 54% in 2017. The number of operating coal plants in the highest operating cost group fell by more than the fleet average, from 75% in 2008 to 47% in 2017.”

For more details on how natural gas is causing some coal-fired plants to retire, please see the full EIA release: https://www.eia.gov/todayinenergy/detail.php?id=42155.