The U.S. Should Be Burning Up Coal This Winter But Probably Won't

(Bloomberg) -- With natural gas prices surging in the U.S., you might think coal would be king again this winter. Think again.

Yes, production is rising, a little. And yes, higher electricity prices in the biggest U.S. power market are providing a rare opportunity for aging coal-fired steam generators to run with comfortable profit margins, according to a report Wednesday by Morningstar Inc.

But a decade of coal-plant retirements, combined with shut-in Appalachian mines, have left generators supplying PJM Interconnection LLC’s grid with little flexibility to ramp up quickly.

The U.S. Should Be Burning Up Coal This Winter But Probably Won't

Generating margins for coal plants in PJM are close to $30 a megawatt-hour, Matthew Hong, director of power and gas research at Morningstar, said in the report. While Appalachian production so far this year is up about 2.3 percent from a year earlier, much of the additional output is heading for export markets, not U.S. power producers.

“That has left little capacity for domestic mines to rally production to service an unexpected reversal in coal-generation economics,” Hong said. The result is “a shrinking coal backstop in PJM.”

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