Reading the energy headlines creates the impression that a flood of power plant retirements is underway. For example, EPA rules are often said to be producing large numbers of coal retirements. Yet, during the first 5 months of 2012, plant retirements are a trickle.
EIA data for January to May, 2012 document the retirement of 2,776.7 megawatts of generating capacity of all types. Just 1,635.5 megawatts were coal plant retirements.
Indeed, the real news in the retirement data of 2012 are two points. First, in the first 5 months, approximately 0.25% of US generating capacity and about 0.5% of US coal capacity retired.
The rate of coal retirements is twice the overall rate of plant retirements but remains low. If one assumes a useful life of 40 years for power plants, 2.5% of the nation's generation would retire every year.
Not surprisingly, given the slow current rate of retirements, the amount of new capacity that began operating outpaced by 2 to 1 capacity that closed. More than 5,627.1 megawatts began operation from January to May 2012, with natural gas and renewable energy dominating.
So key questions are, will the pace of plant retirements and new construction change in 2013 and 2014? Ye and here's why.
Based on the approximately 48,000 megawatts of coal plants that owners have announced will close over the next 10 years, the rate of retirements is likely to increase in the coming years. For example, January 2015 is when the EPA air toxic rule takes effect, unless the courts stop it.
Rising retirements may also be matched by falling new plant generation, with the result that the amount of retirements could equal or even exceed the amount of new plant construction in some years. That might happen even in 2013, since next year will be a bad year for new wind power that has often accounted for 30% or more of new capacity during the last 5 years.
Other bearish facts for new central station power plant construction are low wholesale market prices, large amounts of excess generation capacity in most areas of the country, rising demand response and energy efficiency, and slow increases in electricity demand.
Still another challenge to central station power plants--new and old-- is booming deployment of on-site generation technologies like combined heat and power and solar. For these reasons, the gap between the amount of retirements and new central station construction will certainly narrow and could even reverse in the coming years.