White Papers New Age Energy Markets - Challenges for Utilities, | Page 3

New Age Energy Markets - Challenges for Utilities, IPPs and Traders

A ComTechAdvisory Whitepaper

THE EXIT OF COAL MARKS THE
BEGINNING OF THE NEW AGE
US federal energy policies over the last couple of decades have been a stick and carrot affair – a mix of regulations and mandates that have sought to punish coal-fired generation and to encourage development and use
of renewable energy resources. As early as 1992, the US federal government has supported the growth of renewable energy sources via a number of financial incentives, including investment and production tax credits. These
incentives, coupled with federally funded research and development projects made available to industry, have encouraged massive investment and deployment of many forms of renewables, but particularly wind and solar generation. Simultaneously with stimulating investments in renewables, the Environmental Protection Agency (EPA),
leveraging the Clean Air Act of 1970, began mandating reductions in particulates, pollutants, and greenhouse gas
emissions associated with burning hydrocarbons for power generation. Through a series of increasingly costly regulations and mandates over the last decade, including the most recent Mercury and Air Toxics Standards (MATS),
EPA rule-making has driven up the costs of building and operating new coal-fired generation facilities to prohibitive levels and forced expensive upgrades to otherwise modern plants. For many older plants, those beyond 35
years, these new regulations are forcing early retirements as these plants become unprofitable to operate given
the costs of upgrades necessary to be compliant. In 2015 alone, 15 gigawatts of coal fired capacity was retired,
amounting to about 4.6% of the nation’s coal capacity at the beginning of that year; and through 2017, the FERC
estimates as much as 64 gigawatts of coal fired capacity will be retired.

Beyond the regulatory pressures bearing down on coal
generation, the advent of the shale gas revolution is further
exacerbating the movement away from coal and to natural gas.
Leveraging long reach lateral drilling and massive hydraulic
fracturing, US drillers have opened vast shale deposits to production and in the process have created a surplus of supply
that has driven down prices making natural gas the cheapest
fuel for power generation in virtually all markets. With natural
gas prices trading consistently around $2.00MMBTU at Henry Hub, and little hope they will rise above $2.50 in the near

term, cheap gas has effectively put at least a temporary nail in
the coffin for new coal plant development, and has reduced the
utilization of many of the existing plants. Though natural gas
had a significant role in the generation mix since the 1970’s
when gas fired generators were typically employed as peaking
facilities, as older coal plants are retired and replaced by with
combined cycle or gas turbine facilities, and with fuel switching
from coal to gas at a number of other facilities, natural gas generators are increasingly being pressed into service for baseload capacity.

RENEWABLES ON THE RISE
Prior to 2000, new generation capacity in any year was almost exclusively a mix of coal, gas, hydro and nuclear;
however, with coal being effectively regulated and priced out of the market and federal subsidization via various
tax credits supporting investments in renewables, the mix of new generation shifted dramatically over the last decade and a half, with gas, wind and solar forming the bulk of new capacity additions. Though coal still maintains
a dominate position with as much as 70% of US total capacity, gas-fired plants are now operating at near parity
with coal, with nuclear, wind, solar and hydro adding about 30% on an “average” day.
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