2 Stats Show the Dire State of U.S. Coal – Fired Power Plants
A combination of factors is allowing the United States to rapidly decarbonize its power sector. Almost all of them create existential risks for coal-fired power plants.
America’s coal fleet turned in its weakest first-quarter performance in decades due to a mild winter, the rise of renewables, and falling natural gas prices. The consumption-sapping effects of the coronavirus pandemic suggest the second-quarter performance will be even worse.
The nuance behind the numbers suggests the downturn will be difficult, if not impossible, for coal to recover from. That will create challenges and opportunities for individual investors.
These two numbers pack quite the punch
Last year was the worst year for American coal-fired power plants in decades. The nation’s coal fleet generated less than 1,000 terawatt-hours of electricity for the first time since 1976. The year-over-year decline of 16% was the largest percentage drop in history.
Market conditions were expected to deteriorate in 2020 — and that was before the coronavirus pandemic disrupted the power sector. Analysts expected low natural gas prices, the addition of new natural gas and renewable energy infrastructure, and mild winter temperatures to continue pressuring coal-fired power plants. The projections proved accurate in the first three months of the year, which is evident in two metrics: total electricity output and utilization rate.
In the first quarter of 2020, the electricity output from coal-fired power plants declined 34% compared to the year-ago period. The fleet experienced only a 5% reduction in total power capacity in that span, which highlights the dire situation for many coal facilities.
Indeed, American coal-fired power plants boasted an average utilization rate of just 33% in the first three months of this year, compared to a utilization rate of over 50% in the same period of 2019. It’s the first three-month period in history that onshore wind farms have churned out a higher utilization rate than coal-fired power plants. It also demonstrates that many coal facilities find themselves in an uncomfortable economic limbo: largely idled, but not officially retired.
Given the reality of the coronavirus pandemic and government-mandated movement restrictions, investors can expect electricity generation from coal-fired power plants to fall by a record percentage in 2020 — perhaps as much as 25%, compared to last year. That said, there are opportunities in coal’s demise.
The challenges and opportunities ahead
Coal-fired power plants may never regain the market share lost in 2020. Although low utilization rates suggest much capacity remains ready to serve the grid, the reality is that new natural gas, wind, and solar capacity is going to permanently steal coal’s market share. That’s what happened last year.