U.S. coal outlook 2020: market trends pushing industry ever closer to a reckoning

The rapid transition under way in the U.S. electricity generation sector was on blunt display in February when renewable generation (wind, utility-scale solar and hydropower) produced more electricity for the month than coal. This winter-month result was unprecedented but will likely occur with greater frequency in the months ahead.

The February numbers are of note because they highlight the rapid pace of change. Over the course of the month, coal-fired generation produced 54.7 million megawatt-hours of electricity—the lowest monthly total in at least 10 years. The previous low, set last April, was 60 million MWh. Coal generation in February had never fallen below 80 million MWh and was well above 100 million MWh as recently as 2015.

IEEFA projected last November that renewables would fully outpace coal-fired generation on an annual basis in 2021. That likelihood persists, and the transition in fact is gaining speed as utilities phase out coal-fired generation and turn to gas and renewables.

While coal is declining, both gas and renewables are ascending, indicative of a new normal in electricity generation. IEEFA projects now that coal’s share of the generation market (23.5% in 2019) will fall soon below 20% of the national total, perhaps as early as this year. Looking somewhat farther into the future, IEEFA sees coal’s share of the generation market potentially dropping to 10% or less by 2025.

Political support for coal remains strong in several pockets of the country, and some policymakers are trying to slow its decline. Recent legislation in Wyoming and Indiana, for example, aims to prop up coal-fired power plants by making it more difficult for utilities to close them. Similarly, a new law in Ohio provides a ratepayer bailout to keep two uncompetitive coal plants online. Elsewhere, several companies and jurisdictions are pushing for financially unviable carbon-capture retrofits to keep dying coal plants alive.

None of these initiatives make economic sense, all are out of step with market forces, and none will have more than a stopgap effect.

The U.S. coal sector has been in decline for a long time—year upon year—and 2020 will be no different. Indeed, this may be the year in which an array of market forces in combination may simply overwhelm the industry.

Five problems persist:

• Long-term low gas prices and capacity expansion by both the solar and wind sectors will continue to take market share from coal;

• Current levels of production capacity are unsustainable;

• Coal-industry financing is increasingly difficult to secure, raising the price of insurance and making it harder to meet bonding requirements;

• Investor-owned utilities continue to move away from coal;

• Cooperative and municipal utilities are reconsidering their historical support for coal-fired generation; and

• Exports, particularly of steam coal, are likely to fall as other countries move toward cleaner generation.

While it can be difficult to appreciate the speed of the decline of the U.S. coal industry, the numbers speak for themselves. In 2014, coal supplied 38.6% of the nation’s electricity needs. By 2019, that figure had dropped to 23.4%. By 2025, the number will approach if not collapse into single digits.

Coal’s importance will continue to decline, in other words, as market erosion gains momentum across the industry through 2020 and beyond.