As of late last year coal formed the backbone of U.S. electric generation capacity. At a share of roughly 39%, it still does. However, the U.S. energy mix is rapidly changing and coal is past its peak.
In 2015, the U.S. is expected to retire nearly 13 gigawatts (GW) of coal-fired generation -- three times more than last year. An additional 5.2 GW will be retired in 2016. The Environmental Protection Agency's Mercury and Air Toxics Standards (MATS) are the primary cause of this year's large-scale retirements. MATS are slated to enter into force by year's end, and the retrofits necessary to meet the increased emissions standards are largely, and by design, cost-prohibitive.
Most of the closings, more than 8 GW, are centered in the Appalachian region. Hardest hit is Ohio -- and some of its largest utilities, AEP and FirstEnergy -- where approximately 2.4 GW is leaving the fold. Indiana and Kentucky round out the top three with closings of more than 2 GW and 1 GW respectively. Outside of Appalachia, the U.S.'s largest carbon dioxide emitter Southern Co. (SO) will convert its 1.4 GW Yates plant to natural gas.
Coal's current woes are well documented, but the industry -- while dying -- is far from dead. Simply put, you cannot replace almost 1.5 trillion kilowatt hours of annual electricity generation overnight. For big coal, the looming retirements represent the lowest-hanging -- and lowest-capacity -- fruit. By 2040, coal is expected to account for approximately 21%, or 254.1 gigawatts, of electricity generating capacity -- second only to natural gas.
Coal's decline contrasts strong growth elsewhere ¿ namely, among non-hydro renewables like wind and solar. Utilities expect to add over 20 GW of utility-scale generating capacity to the grid in 2015. Of that total, wind, solar, and natural gas additions will account for 91%.
Since 2000, wind has been one of the fastest-growing sources of new electricity supply and that trend will continue toward 2020. The industry expects to expand by more than 11%, or 9.8 GW, this year. Additions are planned across the nation, but the Plains states -- from the Canadian border down to the Gulf -- will see the bulk of new capacity. Per tradition, Texas will do it bigger. IKEA's Cameron Wind project and Capital Dynamics' Green Pastures development are just a fraction of the reported 7.5 GW of wind capacity currently under construction in Texas -- already the nation's largest producer of wind power.
Solar installations are largely limited to California, where new additions -- 1.2 GW -- are expected to account for more than half of the nationwide total for 2015. In fact, First Solar's (FSLR) Desert Sunlight solar farm in the Mojave Desert -- online as of February -- will supply a quarter of this year's new capacity. However, the real solar surprise comes out of North Carolina. The state, which has renewable portfolio standard policies in place, plans to add 0.4 GW to its approximately 1 GW of existing installed capacity. Leading the charge is Duke Energy (DUK), the state's -- and nation's -- largest electric power holding company. Duke recently announced investments of up to $225 million into commercial solar projects, which follows its $500 million commitment to North Carolina solar of late last year.
The projected wind and solar capacity additions provide sufficient evidence that cheap oil -- and cheap coal -- won't significantly alter steady renewables growth. Still, far lower utilization rates mean natural gas will replace much of the coal-fired losses in terms of pure generation. In all, natural gas will add 6.3 GW of generating capacity this year.
For now, gas is the bridge, but the jury is not out on its ultimate effectiveness. It's actually quite dirty over its entire lifecycle and recent research suggests that a heavy blend of wind and coal may actually result in lower emissions than the current natural gas-based transition. That won't work, however, without steady congressional support for the production tax credit.
By Colin Chilcoat of Oilprice.com