Coal Plant Asset Optimization Strategies in the Face of Impending Retirements

Across Europe and the United States, aging coal plants are facing increased pressure to retire. Many owners are starting to think hard about coal plant asset optimization strategies, as these units are going offline in increasing numbers. In some cases, plant life can be extended with modern coal technologies, but the hard fact is that many plants will retire.

This trend will continue in coming years in both the U.S. and Europe. Beyond the issue of carbon, there is the simple fact that cheaper natural gas and growing amounts of renewables with low marginal costs are eating into margins. Spark spreads are compressed, and the profitability just isn't there. In 2015 alone, the U.S. saw almost 18,000 megawatts of coal plant retirements, and 80 percent of that was conventional steam coal, according to the U.S. Energy Information Administration. The likely demise of the Obama administration's Clean Power Plan may slow the decline but is not likely to stop it.

In Europe, similar pressures exist. Even some brand-new power plants have been shuttered. Many of Europe's coal plants are nearing the end of their economic life, and some countries—including the U.K., Finland, and France—have committed to fully phasing out coal. Others, such as Germany, are forcing the retirement of coal plants in exchange for compensation, according to a report by Climate Analytics. About 18 percent of Germany's coal-fired capacity has been shuttered since 2011, Bloomberg reports, with up to 10 percent expected to close in the next three years.

Caught in this dynamic, owners and operators must make a series of critical choices about how to approach these retirements. Various stakeholders are faced with a host of decisions addressing engineering, environmental, safety, legal, and real estate concerns. The resulting courses of action must also be approved by various regulatory, environmental, and local authorities, and coordinated with grid operators to ensure ongoing reliability.

Planning for Change

Prior to closure, proactive planning is required. The first step is to determine the closure date and the necessary minimum investments required to maintain a safe operating environment in the interim. Then it's important to determine the long-term value of the site and the associated decommissioning costs, which will include everything from hazmat treatment and coal ash disposal to scrap recovery and remediation of the land for other purposes.

In some instances, brownfield sites can be quite valuable for redevelopment, depending on location. Such cases may merit more investment in order to prepare the land for its next use. This decommissioning process is not new, and there are specialist companies that cover everything from the demolition engineering to scrap and asset recovery strategies and valuation of affected land.

Various Retirement Options Exist

There are often numerous options for coal plant asset optimization, and they are largely dependent upon site location. Decommissioned coal plants can be converted to natural gas or replaced with new natural-gas-fired generating equipment, employing the existing grid infrastructure. This conversion is often more economic than building a new plant.

Some brownfield sites can be reused by the power industry, while others can be repurposed for mixed-use development. One highly visible instance is the Pratt Street Power Plant in downtown Baltimore, where a coal-fired plant was converted into a complex hosting multiple restaurants, office suites, and stores.

Owners may also elect to sell specific assets within the plant. In one case, hardware from a defunct plant in the U.K. moved to a sister plant in South Africa. Owners may also choose to sell the facility as is, letting the buyer assume the risk in exchange for a lower price.

Abandoning in Place or Demolition

The majority of U.S. plants have been decommissioned in recent years, according to Power Magazine. In many cases, owners may simply opt to maintain ownership but not undertake demolition, site remediation, or redevelopment activities. In the absence of legal mandates to address this situation, these facilities may simply lie dormant. This outcome is undesirable for hosting communities. This default option simply ignores a problem that will eventually need to be addressed. Proactive planning is therefore more advantageous and essential to achieving the best decommissioning outcome.

If demolition is the prescribed route, it may be helpful to interview former employees who know the history of the plant and can highlight issues related to PCBs, asbestos, and other risks, so these can be addressed prior to demolition.

Since the ultimate outcome often depends on the economics, it is absolutely critical to understand the costs and benefits of all options. Whether abandoning in place, repurposing with gas-fired turbines, or redeveloping for other uses, it is important to proactively evaluate the available strategies for each of these sites. The good news is that numerous utilities and energy companies have experience with this, and there is a solid body of knowledge to be tapped. Experts are available to help evaluate these options. When done well, the best retirement strategies can be beneficial to multiple parties. When done poorly, the costs can be considerable—both economically and with respect to a company's reputation within the community and the industry at large.