Analysis: MISO coal burn for generation drops

OREANDA-NEWS. May 15, 2015. Dispatched coal generation in the Midcontinent Independent System Operator (MISO) territory slid again in April as natural gas-fired generation and wind farms gained share in the 15-state organization's central and southern regions.

Coal accounted for 68pc of generation in MISO's central region, down from about 70pc in April 2014, based on the latest monthly operations report by the grid's market monitor. Cleared load in that region, which includes Michigan, eastern Wisconsin and parts of Illinois, Missouri and Indiana, fell by 2pc year over year. Most of MISO's coal capacity is in that region.

The year-over-year decline was more significant in the MISO south region, where the share of coal fell by more than half to 11pc. But the four-state region covering parts of Arkansas, Louisiana, Mississippi and Texas already predominantly relies on natural gas and nuclear power for generation. The share of natural gas in MISO's southern region amounted to 53pc in April. By contrast, that fuel's share in the supply mix was only 11pc in the midwest segment of the grid.

Coal made slight gains in MISO's northern region, which includes Iowa, Minnesota, North Dakota and western Wisconsin. Coal accounted for 49pc of generation, with wind providing 31pc.

The April numbers did not show a significant decline in coal generation even though the first coal units started to retire as a result of the federal mercury and air toxics rule that took effect on 16 April. The retirements will be staggered over April-June and the full effect of the rule will not be felt until April 2016 because multiple plants have secured a one-year extension from the compliance requirement.

MISO's most recent survey of coal plant owners showed 9.3GW of coal resources critically affected by environmental regulations in the north and central regions, out of the total installed 66GW of coal capacity. Most will retire in 2015-16 while 1.4GW plan to convert to another fuel, with natural gas as the most likely replacement source.

Another 6.4GW in MISO's southern region require upgrades to comply with federal rules affecting coal plants, but plant dispatch economics point to retirements rather than costly compliance measures.

The looming retirements so far have not boosted wholesale energy prices and forward assessments in MISO, which is the second largest US power grid. Power prices this year have trailed year-earlier levels, in line with natural gas prices that often set power prices on margin. Rising wind generation in the north also pressured power prices.

But prices for bilateral capacity deals — obligations to supply power to utilities — have been rising. And MISO's most recent annual planning auction for the June 2015-May 2016 period resulted in a significant increase in capacity prices in southern Illinois.

The share of coal in MISO's generation already fell in the first quarter to 53pc, from 62pc a year earlier, while natural gas increased its share to 20pc from 14pc. That decline reflected dispatch economics favoring natural gas prices and fewer outages and gas pipeline constraints — factors that in winter 2013-14 forced a lot of gas-fired capacity off line.