by Neil Powell, SNL Energy
2012 was a year full of changes in the energy sector, driven by cheaper natural gas and new Environmental Protection Agency (EPA) regulations.
For coal and natural gas, 2012 proved to be a year full of changes, ranging from EPA rules to coal unit retirements to the large amount of coal-to-gas switching that transpired. The year also saw large utility mergers and portions of the East Coast devastated by natural disaster.
EPA regulation was at the forefront in 2012 because of the large impact it has in coal-fired generation through the need for substantial investment in retrofit technology. In August, the U.S. Court of Appeals for the District of Columbia Circuit found that the EPA had overstepped its bounds and vacated the agency's Cross State Air Pollution Rule (CSAPR), which was intended to replace its predecessor, the Clean Air Interstate Rule, and reduce emissions of SO2 and NOX in 23 states.
Although CSAPR’s being vacated is a victory for coal proponents, it brings about unintended consequences. Many coal units will fall under the Regional Haze Rule, which was drafted to protect visibility in U.S. national parks. The rule requires older plants to install best available retrofit technology (BART), which potentially could be more expensive than retrofits necessitated by CSAPR.
Another EPA regulation in the spotlight is the Mercury and Air Toxics Standards (MATS) for electric utility steam generating units, also known as the utility MACT rule. The rule will take effect in 2015 and set the first emissions limits on mercury and other toxic pollutants from power plants.
This combination of environmental regulations has given utility planners two options: Retire units or retrofit them with expensive emissions-control technologies. Many aging units have been retired, and in the latest iteration of the coal retirement Data Dispatch, SNL Energy found that more than 30,300 MW of coal-fired capacity is set to be retired by 2021.
Coal development projects have had to shorten development time frames to bring units online before April 2013 when new standards for regulation carbon emissions under the Clean Air Act will come into effect. Among canceled development projects in 2012, terminated coal projects accounted for almost a third of total terminated capacity.
2012 proved to be a breakout year for natural gas. For the first time in the nation's history, gas-fired generation outstripped coal generation. Spurred by the shale gas revolution, which helped lead to lower natural gas prices, nearly 84,000 MW of gas-fired combined-cycle gas turbine (CCGT) capacity was in some stage of development as of August.
As low natural gas prices provided an economic alternative to coal, SNL Energy identified more than 78,000 MW of capacity that has the capability to use coal and natural gas for electricity generation.
Although some coal plants can burn natural gas to ramp up and have increased gas usage, most coal-to-gas switching has occurred through natural gas combined-cycle plants’ moving ahead of less-efficient coal plants along the power supply curve because of the relatively low natural gas prices and higher eastern coal prices. SNL Energy analyzed prices and calculated gas parity to see if additional switching could occur, given current market prices.
Although coal and natural gas have dominated headlines, the nation has continued to invest in renewable technology, driven by renewable portfolio standards in many states.
The year also saw two large M&A deals close. The first, between Duke Energy Corp. and Progress Energy Inc., created an entity with nearly 62,000 MW of operating and out-of-service capacity in the U.S. The deal closed, but it was not without hiccups and potentially strained relationships between the company and North Carolina regulators.
Consolidation among merchant generators continued with NRG Energy Inc. and GenOn Energy Inc. as they announced plans to merge. The combined company had a capacity of nearly 49,000 MW when the deal was announced.
A recap of the year would be incomplete without mentioning Hurricane Sandy and the impact it had on the East Coast. The late-October storm threatened more than 183,000 MW of power plant capacity across 14 states. Many customers were without power after infrastructure damage and weather necessitated plants operated at less than full capacity.