Rejected teenagers: the trend of closing young coal plants
A series of announcements over the last few weeks suggests that the storyline that only old coal power plants are being closed down is rapidly becoming redundant as plants that are barely teenagers are being targeted for closure.
Last week the Italian Government announced it will close all 8980 megawatts (MW) of its coal power plant capacity by 2025. The government’s new energy strategy is not due to be publicly released until November 7, so it is still possible the devil may be in the detail. However, with nearly all of the plants reliant on imported coal, Italy’s decision is yet another hit for thermal coal exporters.
While Italy’s announcement is big news in itself, even more remarkable is that the 1980 MW Torrevaldaliga Nord power station in Rome province, the three units of which were only commissioned in 2009 and 2010, will be closed before it has even been running for 16 years.
Earlier this year Climate Analytics, a consultancy firm, put together a list of the top 20 plants in the European Union that would have to close to have a chance of meeting the Paris Agreement climate targets. Climate Analytics suggested that, at best, the Torrevaldaliga Nord power station might be closed by 2029 and, at worst — under a “business as usual” scenario — by 2061.
The plant may comprise supercritical units — which are touted by the increasingly isolated coal lobby groups as the solution to coal-power pollution — but the government still decided to close the plant. In the eyes of the Italian Government, the best response to the accelerating climate crisis is to shut coal plants down whether they are of a slightly more fuel-efficient supercritical design or not.
“In the eyes of the Italian Government, the best response to the accelerating climate crisis is to shut coal plants down whether they are of a slightly more fuel-efficient supercritical design or not.”
The plant, which is owned by the Italian utility Enel, was strongly resisted by residents and environmentalists a decade ago, with legal actions and, in May 2007, even hunger strikes. Ultimately, Enel prevailed.
Fast-forward a decade, and the end is now in sight for the plant. The Italian Government, which is a part-owner of Enel, has also signalled that the utility will have no involvement in any more coal plants.
Another plant on Climate Analytics’ high priority list for shutting down is Enel’s coal-fired 2640 MW Brindisi Sud power station, which was commissioned between 1991 and 1993. However, the consultancy expected that the plant would operate until sometime between 2028 and 2044. Now the plant will be closed before it makes it to 35 years old.
While the life span of coal plants varies, well-maintained plants are commonly expected to last for at least 40 years and — with major upgrades — can even stagger on until they are well over 50 years old. The Hazelwood plant in Australia, which closed earlier this year, was 52 at the time it was shut down. According to CoalSwarm’s global coal plant database, the average age of US coal plants at the time of retirement is 53 years. In India, the Central Electricity Authority expects key coal plant components to last for just 25 to 30 years.
Boosting profits by cutting coal, Texas-style
While the norm may have been for coal plants to run for decades longer than their original design life, that may be changing rapidly.
Two weeks ago, the Texas-based utility Luminant announced that it plans to close its 1182 MW Sandow plant in mid-January 2018, after Alcoa paid out the remainder of its power purchase agreement.
The plant, which comprises two operating units, originally supplied electricity for Alcoa’s Rockdale aluminium smelter under a binding contract which was set to run until 2038. However, after the closure of the smelter in 2008, Alcoa sold power into the deregulated Texas market. When new renewable and gas generation came onstream, this became a losing strategy.
Luminant stated rather euphemistically that the Sandow plant was “economically challenged.”
To break its contract, Alcoa agreed to pay Luminant US$237 million and transfer 30,000 hectares of land to compensate the utility for lost income.
Even so, it was a good deal for Alcoa. In announcing the settlement, Alcoa stated it would be US$60–70 million a year better-off after closing the plant.
The newest unit at the Sandow plant, with 581 MW capacity, was only brought online in September 2009. If Luminant’s request to shut the Sandow plant is approved by the market regulator, the unit will have been running for just over eight years when its boiler finally goes cold.
Shiny new Dutch plants destined for a short life
The week before Luminant’s announcement, four parties in the Dutch parliament reached an agreement to form a new coalition government. As part of the deal, the parties committed to phase out all five coal plants in the Netherlands before 2030, with the oldest coal plant to be closed before 2022.
Pressure for the shut-down of the Netherlands’ coal plants had been building for years.
Even though opposition to the individual plants had proven unsuccessful, one legal challenge proved decisive. On behalf of 886 individuals, the Dutch NGO Urgenda brought a case arguing the government’s official target of a 15 to 17 per cent emissions reduction below 1990 levels by 2020 would not protect the country’s citizens from dangerous climate change.
In particular, the court noted in its June 2016 ruling there was no strong argument against adopting a 25 per cent emissions reduction target by 2020. With a tight deadline and a significant increase in the reductions required, there was no way existing coal plants — the lowest-hanging fruit — could escape unscathed.
In September 2016 the Dutch parliament voted in favour of a non-binding resolution supporting a 55 per cent cut in carbon dioxide emission by 2030. It was a target that meant all the Netherlands coal plants would be forced to close.
The only alternative was fitting extremely expensive carbon capture and storage (CCS) equipment, which only two small commercial coal power plants have done to date. (The Boundary Dam project in Canada has had major technical and financial problems while the Petra Nova project in the US is uneconomic.) However, with both Engie and Uniper exiting from the Rotterdam Carbon Storage and Demonstration Project (ROAD) consortium in 2016, the CCS option was not viable in the Netherlands.
While the then economic minister, Henk Kamp, opposed shutting the three new coal plants, the debate had shifted rapidly against coal plants.
By the time of the March 2017 national election, there was broad support for a coal exit, with the main disagreement over the timetable. While Greenpeace Netherlands is pushing for a 2020 deadline to achieve the terms of the court ruling on the Urgenda case, the four parties ultimately opted for a 2030 deadline.
However, the debate over when the coal plants will close is far from over. This week a report by the Netherlands’ Environmental Assessment Agency (PBL) found the coalition’s climate plan may only reduce greenhouse gas emissions by between 35 and 42 per cent rather than the target of 49 per cent below 1990 levels by 2030. It also flagged the magnitude of the reductions from coal plant closures is hard to estimate, depending on the origin of any power imports.
There are two other factors suggesting the plants may well close well before 2030. The coalition agreement provides for a carbon floor price of €43 (US$50) per tonne of carbon dioxide. With higher operating costs and the value of the plants already massively written down, the utilities may well be prepared to cut a deal with the government to shut the plants ahead of 2030 in return for compensation.
Out with the young, in with the renewables
Whether in Italy, the US or the Netherlands, the trend to the retirement of teenaged coal plants — or even younger in the case of one of Luminant’s Sandow units — is something new. In the space of a month, three separate announcements have slated 6600 MW of young coal plants to be closed long before their technical life is over.
Where once the life of a coal plant of 40 years or more was determined by what physical shape the plant was in, political and economic factors are fast emerging as the key determinants of how long they will run.
Two of the key drivers for long plant life — a stable pro-coal political climate and favourable economics — are evaporating fast. The politics of climate change are shifting, often across the political spectrum, with support for phasing out coal plants growing rapidly. The plummeting cost of renewable generation is making running existing coal plants ever more marginal.
The retirement of plants that are barely teenagers will send shudders through the ranks of already nervous investors and horrify utility executives planning on old coal plants running for decades longer.
As momentum for a coal plant phase out gathers pace, the closure of teenaged coal plants may well be a pointer of things to come.
Bob Burton is the Editor of CoalWire, a weekly bulletin on global coal industry developments. (You can sign up for it here.)