In 2021 and 2022, coal generation experienced a resurgence out of the doldrums of lost load in 2020 due to COVID-19. However, that resurgence came to a sudden halt in the early months of 2023. In January and February of this year, coal generation has plummeted 30% year-over-year. However, while coal has been down nationwide, regional declines have been driven by a variety of factors, including low natural gas prices, mild winter temperatures, and record levels of renewables generation.
Coal generation saw its historic daily lows on April 11, 2020, as lockdowns proliferated across the U.S. and moderate spring temperatures started to set in. While this low has not been tested since 2020, this year has come the closest since coal generation fell nearly 50% in February and March compared to this year’s peak on February 1st.
While coal plant retirements have historically been a key driver behind declining coal generation, the recent drop-off in coal-fired generation cannot be attributed to lost capacity. In the past three months, 3.9 GW of coal capacity have been retired, which amounts to 1.8% of the U.S.’ coal fleet. Instead, other dynamics came to the fore. For one thing, heating-related load has been lower than normal as a result of milder temperatures across the country. In addition to falling load, two other regional idiosyncrasies emerged: in areas with high renewables penetration (like ERCOT and SPP), renewables generation rose at the expense of coal, while in areas with lower renewables penetration (like PJM), gas generation picked up.
As the graphic below illustrates, record-setting solar generation in ERCOT and surging wind in both ERCOT and SPP played a major role in displacing coal-fired generation last month. The chart below compares this year’s generation and load to last year’s and shows a clear pattern: when renewable generation is up, thermal generation is down and vice versa. Also, coal generation’s relationship with load is the inverse of its relationship with renewables: when load is up, thermal generation is typically up and vice versa.
ERCOT and SPP have a relatively high penetration of renewables compared to more natural gas-reliant regions, like PJM. In PJM, reduced coal generation was almost entirely replaced by natural gas-fired generation (after adjusting for changes in load). This was driven by a steep fall in regional natural gas prices from highs of $25.11/MMBtu in December 2022 to an average price of $2.47/MMBtu this month. As shown in the graphic below, plummeting gas prices allowed gas-fired generation to reduce coal’s share of PJM’s generation stack from a third of the generation stack in late December to about 12% in March.
After a short-lived post-pandemic recovery, coal generation is once again pushing towards historic lows. While overall natural gas prices will still play a role in dictating the order of dispatch, coal plants have become increasingly sensitive to net load (load less renewables generation) rather than input pricing. Renewables testing high water marks, and breaking them, will take its toll on thermal generation, especially coal. As we enter the spring, when wind generation picks up and natural gas prices typically remain low, expect coal generation to reach new all-time lows.