The decline of coal generation in the U.S. has been written about extensively over the past year, and whether low natural gas prices or EPA regulations are to blame. So which is it? Are natural gas prices or regulations shuttering coal units? The answer is not that simple, and is dependent on the economic situation of each coal unit. Factors that influence the retirement, repowering, or replacement (with new natural gas-fired unit) decision include:

• Unit characteristics: age, heat rate, type of boiler, and currently installed emission controls. A supercritical pulverized coal unit equipped with a scrubber and selective catalytic reduction (SCR) system has a different economic vulnerability than an unscrubbed, inefficient 50-year-old unit;
• Capacity utilization of the unit;
• Geographic location and delivered price of coal or natural gas – which takes into consideration infrastructure such as pipelines and rail networks;
• Electricity market in which the unit resides, as different markets have different electricity prices, generating fleet profiles, and merit orders;
• Reliability considerations and the valuation of ancillary services such as spinning reserves;
• Projected fuel prices into the future;
• Asset diversification and risk considerations;
• Ability to retrofit or use some portion of the generating unit if repowered with natural gas;
• Timelines for compliance;
• Other regulatory permitting considerations including New Source Review.

Recently, a Duke University study attempted to tease out the interaction of natural gas prices and regulations by estimating the cost of coal-fired generation compared with natural gas-fired generation at different gas prices and under existing and pending EPA emissions standards. Under current standards and at current fuel prices, the study estimates that 9 percent of coal-fired plants are more costly to run than a median-cost natural gas plant, but even a modest increase in natural gas prices would make coal power the least-cost option. The influence of new emissions standards would make 65 percent of coal plants as costly to run as a natural gas powered plant, even with significant increases in gas prices. The study is useful for understanding the influence of regulations under different natural gas price scenarios, illuminating that this perfect storm of regulations combined with low gas prices will change the economics of coal-fired generation.

However, it is important to note what the study did not address: compliance decisions, retirements and replacement power costs. The competitiveness of coal with natural gas generation is regional and basin-dependent, with lower cost Powder River Basin coal (PRB) competitive with natural gas at lower prices than Appalachian coal. There may also be market shifts once some units retrofit with scrubbers to comply with the Mercury and Air Toxics Rule, as the demand for low-sulfur PRB (driven in large part by unscrubbed coal units) may decrease while demand for medium and high sulfur bituminous increases. Some utilities are also hesitant to overly rely on natural gas in their generation portfolio. This is due to the risk associated with supply disruption rather than concerns about price volatility. As some coal units retrofit to comply with regulations, while others retire and are replaced with natural gas capacity, the generating fleet profile and markets for coal and natural gas will change. One thing is certain, however: coal will no longer be the least cost source of electricity generation in the U.S.