The Decline of U.S. Coal Generation

Highlights:

• U.S. coal generating capacity finished 2023 at 195,000 MW, down 4.6%

• U.S. coal power generating capacity has declined by 4.3% per year on average over the last decade

• 2023 U.S. coal generation came in at 676 GWh, down 19% versus 2022

• Declining coal generation is a two-part story - capacity is being retired and capacity factors for the remaining operating fleet are being pressured

• U.S. aggregate coal capacity factors were 38.7% in 2023, down from 44.6% in 2022

• EnerWrap expects U.S. coal capacity factors to take out all-time lows (38.0% in 2020 during COVID) in the near future, but also expect capacity factor declines to moderate, limiting coal-to-gas switching compared to prior years

Pressurized Coal

From over 300,000 MW of generating capacity in 2021, U.S. coal generating capacity is expected to decline to 140,000 MW by 2040 based on announced retirements.

Coal generation declines have been larger than capacity reductions, with four of the last five years seeing declines between 15-20%. Using planned retirements and capacity factor assumptions we can model coal generation in 2040 at 313 GWh versus 676 GWh in 2023, a 54% reduction, compared to a 28% reduction in operating capacity. We model coal capacity factors declining from 38.6% in 2023 to 25.5% in 2040.

U.S. coal capacity factors are down from the low-to-mid 70% range in the early 2000s to under 40% now. It is a vicious cycle. Lower capacity factors equate into lower profitability and more retirements. We expect capacity factor reductions to moderate in pace simply because the coal fleet must operate enough to cover fixed costs, maintenance and provide some level of profitability, otherwise expected plant retirements are understated. Regardless, coal generation capacity in aggregate in the U.S. is looking less and less baseload.

Daily coal as a percentage of the U.S. thermal stack was in the 25-35% range in 2023, averaging 29.2%. Gas switching is driven by economics, but shows operating limitations.

The U.S. thermal market (coal + gas) is growing despite growth in renewable power generation and the decline in coal generation. We tend to think coal share of the thermal market is limited to the downside around 25% near-term.

U.S. natural gas power burn continues to grow despite the strong growth in U.S. wind, solar and battery capacity.

Cold weather during January 2024 has both coal and natural gas generation higher by 10% +/- compared to this point of 2023 but unless weather remains extreme, we expect 2024 coal generation to be down about 6% versus 2023 despite only a 1.5% expected drop in capacity as capacity factors continue to slide.

We’ll continue to report on these topics and provide data-driven insights to make you smarter about Energy.

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