Red-Hot Coal Prices Threaten More Increases in Power Bills

Natural gas isn’t the only power plant fuel that’s caught fire this year. The price of thermal coal from Appalachia to Australia has skyrocketed, threatening to increase production costs and electricity bills this summer.

Coal futures to Northwestern Europe are up 137% this year to $323.50 a tonne. Benchmark prices in the Pacific region, located at an Australian export facility, are up 143% this year. Cash prices in central Appalachia have jumped 40% in 2022 – and more than doubled in the past year – to $129.65 a tonne last week, the highest on record.

Electricity demand has rebounded after the pandemic to boost profits, as has the war in Ukraine, which has prompted European power producers to stock up ahead of Russia’s coal export ban starting in August. .

Meanwhile, investment in mining has faltered amid expectations that coal will continue to lose market share to renewable sources, such as cleaner wind farms and natural gas.

That has kept inventories low.

In the US, coal stocks at power plants in September fell to their lowest level since the 1970s, driven by a sharp drop in demand. Coal stocks at power plants were about 44 percent below the 13-year average in March, according to the most recent data from the Energy Information Administration.

“Not only the domestic market is looking for coal for power generation, but the international market is also looking for it,” said Andy Blumenfeld, director of data analysis at McCloskey at OPIS. Pricing Service is part of News Corp‘S

Dow Jones & Co., the company that publishes the Wall Street Journal.

Although coal production is expected to increase this year from last year, power companies are having a hard time finding fuel, due to congestion at railway terminals and ports. Speculative capital for coal production has been exhausted in recent years. Miners now pre-sell most of their output.

“Many miners are very close, if they haven’t sold out this year,” Mr. Blumenfeld said.

Often, the solution to high coal prices is to switch to burning more natural gas, which is the leading fuel for power generation. But gas prices have risen since the pandemic, for the same reasons as coal. U.S. natural gas contracts are up 133 percent this year and are trading at their highest levels since 2008.

Sheetal Nasta, an analyst with RBN Energy, said high coal and natural gas prices have reduced the need to switch fuels among power producers and created rather inelastic markets for the electricity business. power.

U.S. electricity bills have skyrocketed, and are likely to go higher as households tear down their air conditioners. WSJ’s Katherine Blunt explains why electricity and natural gas prices have risen so much this year and offers tips on how to manage costs. Illustration: Mike Cheslik

“As long as the gas market remains tight and coal remains unavailable to meet rising electricity demand, there is no limit to how high prices for both fuels can go,” she said. “.

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Coal demand is also being driven by slower-than-expected growth in renewable energy installations. The US power sector has shut down about a third of its coal-fired generation capacity since 2010, and another 6% is expected to shut down this year. However, some closures are being rescheduled.

NiSource Utility Owners Inc.

last month said it would push back to late 2025 the decommissioning of two coal-fired units at a power plant in Indiana, slated to close at the end of next year and have their output replaced by solar farms. NiSource said it will continue to burn coal pending a delay in solar plant construction, which it attributed to a Commerce Department investigation into whether solar producers whether China’s heavens illegally evade taxes by routing operations through other countries.

In New Mexico, utility company PNM said it will wait until September 30 to shut down one of its coal-fired power units, instead of this month as planned, to be able to meet electricity demand. capacity for what is expected to be another hot summer. .

PNM also blamed slow solar development and said that having the coal plant running during the summer would avoid the “inevitable energy shortage”.

Write to Ryan Dezember at ryan.dezember@wsj.com

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Edmund DeMarche

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