Obama's Clean Power Plans Will Kill High-Cost Coal Producers

The coal-fired Castle Gate Power Plant outside Helper, Utah on Nov 27, 2012. The plant was closed in the Spring of 2015 in anticipation of new EPA regulations.
The coal-fired Castle Gate Power Plant outside Helper, Utah on Nov 27, 2012. The plant was closed in the Spring of 2015 in anticipation of new EPA regulations. PHOTO: REUTERS

(Bloomberg) - Coal producers strapped with high costs and debt are headed for extinction under President Barack Obama's Clean Power Plan.

They will be left to vie for 650 million tons of utility demand annually, compared with the more than 1 billion averaged during coal's halcyon days at the turn of the century, BB&T Capital Markets Inc. in Richmond, Virginia, said in a report on Monday before the formal release of the plan.

Coal producers are already reeling. Alpha Natural Resources Inc. on Monday became the latest to seek bankruptcy protection.

Obama's proposal calls for a 32 percent reduction in carbon emissions from 2005 levels, more than the 30 percent proposed a year ago.

"We think higher-cost producers, especially those with leverage, would be wiped out," Mr Mark Levin, an analyst at BB&T, said in the report.

"Lower-cost producers would also be impacted by less overall demand and higher fixed costs."

While the plan probably will be hashed out in courts, the uncertainty that it creates on the part of utilities already bodes poorly for coal, Mr Levin said.

"This uncertainty has a bearing on how utilities plan their fuel needs for years into the future," Mr Levin wrote. "That uncertainty can only lead to less, not more, coal consumption, even if the Clean Power Plan is ultimately delayed or blocked."

Coal has seen its share of electricity generation fall to 36 percent from about 50 percent a decade ago, data from the Energy Information Administration showed, largely due to competition from cheaper natural gas and to tougher environmental regulations.