Is the Indiana coal industry heading for the scrap pile?
Its biggest traditional customers, electrical utilities, are quickly moving to less-expensive fuel sources—including natural gas, solar and wind—to power their generating plants. The shift, years in the making, is accelerating and shows no signs of letting up.
Three years ago, Indianapolis Power & Light sent a shudder through the coal industry when it converted its Harding Street Station power plant—which used to burn 2 million tons of coal a year—to natural gas, ending a coal tradition that began when the plant opened in 1931. A few months later, IPL converted the coal-fired units at its Eagle Valley power plant in Martinsville to natural gas.
Other Indiana electric utilities are heading in the same direction.
Vectren Corp., based in Evansville, plans to retire three of its four coal-burning generating units by 2024. In their place, Vectren will substantially increase the use of natural gas as a fuel source and build a 50-megawatt solar farm.
“We have demonstrated a tipping point where coal is no longer the exclusive solution for southwest Indiana customers and continues to be highly risky due to plant age and environmental regulations,” Mike Roeder, Vectren’s vice president of government affairs, told the Indiana House Utilities Committee last month.
And last fall, in the latest bombshell for the coal industry, Merrillville-based Northern Indiana Public Service Co. said it plans to retire four of its five remaining coal-fired electricity-generating units within five years and the other within a decade. The move will save NIPSCO $4 billion over the next 20 years, the company said. It plans to generate 65 percent of its power from solar, wind and other renewables by 2028, and at least 25 percent from natural gas, as it shifts toward less-costly energy sources.
“Coal has been an important and valuable part of our history and energy mix for nearly 90 years; [it] reliably and cost-effectively services the electric needs of customers,” Mike Hooper, NIPSCO’s senior vice president, told the Indiana House Utilities Committee. “However, many coal-fired generating stations have aged and gotten more expensive to maintain and operate.”
In 2010, Indiana had 26 active coal-burning power units. By 2016, it had just 13, and now that number is on track to decrease by at least another eight by 2028.
And fewer coal-burning plants means utilities are less reliant on any one source of power. In 2008, Indiana utilities counted on coal as the fuel source for 97 percent of their electricity generation. By 2017, that figure had fallen to 76 percent, with the rest coming from natural gas, oil, hydro, solar and nuclear.
Experts say that’s likely to continue.
“As utilities look further into the future, where they expect things to trend, that dynamic is not changing,” said Doug Gotham, director of the State Utility Forecasting Group at Purdue University. “On an economic basis, coal has trouble competing.”
Coal plants have been hit hard by rising maintenance costs, including pollution controls. At the same time, the cost of solar and wind power has fallen as the technology has improved. Natural gas, meanwhile, is beating coal as a fuel source in price, thanks to the shale-drilling boom.
Together, the moves are certain to deliver a huge punch to the coal industry, as electric companies convert their baseload to other fuel sources. Last year, U.S. coal consumption hit its lowest level in 40 years. At least five major coal companies have gone bankrupt since 2015.
Nationally, a total of 16,900 megawatts of U.S. power-generation capacity retired in 2018, representing nearly a 50 percent increase from a year earlier, according to S&P Global Market Intelligence data. And coal-fired capacity made up nearly 70 percent of that, despite efforts by the Trump administration to ease regulations on emissions from coal-fired plants.
For coal companies, the issue is critical in Indiana, which still ranks in the top 10 states for both energy production and consumption. Slowly, however, the industry seems to be losing ground. Indiana produced 33.5 million tons of coal last year, down 7 percent from a decade ago.
And Indiana ranks third among all states—behind only Ohio and Pennsylvania—for the number of coal-fueled generating units that have retired or are retiring, according to a March report from the American Coalition for Clean Coal Electricity, an advocacy group for coal producers.
‘Coal’s last gasp’
The trend away from coal is welcomed by many environmentalists. They say coal is a dirty fuel source that spews toxic emissions into the sky, including carbon dioxide, sulphur dioxide, nitrous oxide and particulates, and contributes to chronic health problems, from asthma to cancer.
To them, the fact that coal is more expensive than many other fuel sources is a welcome turn, and one utilities can no longer ignore.
“Coal’s days are done. It’s not even a debate anymore,” said Kerwin Olson, executive director of the Citizens Action Coalition of Indiana, an energy consumer group.
The Sierra Club says coal’s decline is inevitable, as utilities increasingly look elsewhere for energy sources.
“I would characterize this moment in Indiana as ‘coal’s last gasp,’” said Wendy Bredhold, senior representative for the Sierra Club’s “Beyond Coal Campaign” in Indiana and Kentucky. “Coal companies are desperate to delay their certain decline into obsolescence.”
A report in March by Energy Innovation, a renewables analysis firm, concluded that around three-quarters of U.S. coal production is now more expensive than solar and wind energy in providing electricity to American households.
By 2025, nearly the entire U.S. coal system will be “outcompeted” on cost by wind and solar, even when factoring in the construction of new wind turbines and solar panels, the study said.
The study’s authors used public financial filings and data from the Energy Information Agency to work out the cost of energy from coal plants compared with wind and solar options within a 35-mile radius, according to the British newspaper The Guardian.
“Even without major policy shift, we will continue to see coal retire pretty rapidly,” Mike O’Boyle, the study’s co-author, told the newspaper.
Renewables now account for around 17 percent of U.S. electricity generation, with coal’s share declining.
But coal producers here aren’t going down without a fight. State regulators must approve any utility’s plans to retire coal-generating plants and replace them with something else. And the Indiana Coal Council has won designation as an intervenor in the Vectren and NIPSCO cases, a move that allows it to introduce evidence and make arguments before regulators.
“I think coal is in it for the long haul—more than what many are stating,” said Bruce Stevens, president of the Indiana Coal Council.
Its main argument is that utilities won’t reap the savings they are projecting by turning to other fuel sources, and ratepayers will end up paying the price through higher monthly bills.
For example, NIPSCO’s assumptions about future coal prices are debatable, the coal council argues in a recent filing.
“It had been clear throughout 2018 that both coal producers and railroads were aggressively pursuing business in order to assist with the viability of coal plants moving forward,” the council’s filing said. “As a result, there was a disconnect between the coal prices NIPSCO was assuming … and the current state of the market.”
That’s an argument shared by some other pro-coal and conservative public-policy groups. The Heartland Institute, a conservative think tank based in Arlington Heights, Illinois, says NIPSCO’s claim that a conversion to renewable power would save consumers money is baseless.
James Taylor, a senior fellow at the Heartland Institute, wrote in a November column in the American Spectator, a conservative magazine, that national electricity prices are 10 percent higher than in Indiana.
“Unfortunately, NIPSCO wants to put an end to these low prices,” he wrote. “It is proposing to shut down two perfectly functioning coal power plants that provide much of NIPSCO’s low-cost electricity. In their place, NIPSCO wants to build expensive wind and solar power equipment and battery storage for when the wind isn’t blowing or the sun isn’t shining.”
He said the utility is claiming consumer savings at the same time it is proposing to ratchet up electricity rates. Last fall, NIPSCO submitted a request to increase electric rates about 12 percent, a move it said was necessary to upgrade infrastructure to aid the transition from coal, among other things.
“How does NIPSCO claim out of one side of its mouth that its plan to shut down coal power will save consumers money while also proposing to impose a 12 percent rate hike?” he wrote.
NIPSCO officials didn’t return calls to IBJ. But the company is seen as a major force in the movement away from coal. In 2016, the utility said it would retire two of its five remaining coal-fired plants by 2023 and three others by 2035.
But last fall, it took a dramatic step beyond that. NIPSCO said it would retire all four units at its R.M. Schahfer station in Wheatfield by 2023 and its last coal-fired unit, at its Michigan City power station, by 2028.
“As our customers’ needs have changed, so has the energy market,” the company said in November. “Now we stand at the crossroads of the future, with the opportunity to invest in balanced energy options and make energy more affordable and cleaner.”
But coal producers say coal is getting cleaner. They say Indiana’s power producers have spent more than $10 billion in state-of-the-art emission-control equipment in recent years, the most of any state. As a result, coal emissions of sulfur dioxide and nitrous oxide have fallen more than 80 percent in recent decades.
It’s unclear whether other large industrial utilities in Indiana will follow suit in sharply curtailing coal. North Carolina-based Duke Energy, one of the largest utilities in the state, relies on coal for about two-thirds of its energy generation. It isn’t set to file its long-term plans until summer.
And IPL, despite its conversion from coal to natural gas at Harding Street and Eagle Valley power stations, still uses plenty of coal at the Petersburg Generating Station, the largest in its fleet. IPL won’t unveil its long-term plans until November.
Meanwhile, electricity consumption in Indiana is flattening, as customers switch to more efficient products, such as long-lasting lightbulbs. That’s putting additional pressure on utilities to cut costs.
“The high-efficiency bulbs [are] using eight times less electricity than incandescent bulbs,” Gotham said. “We’re going to see more use of that, I think.”
According to the State Utility Forecasting Group at Purdue, the average compounded annual growth rate for consumption will be 0.88 percent through 2035, down from 1.12 percent in the 2017 forecast.
In the meantime, coal producers say they still account for a respectable amount of electricity production in Indiana—about 75 percent last year. They say they’re also finding other buyers for their product.
“We are finding some markets out of state,” Stevens said. “There are some exports. And there is always the potential for some of kind of coal usage.”
He added: “You don’t just flip the switch and get away from coal. It’s going to be around for a long time.”•