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Must-know: Power companies’ views on coal and natural gas

Ingrid Pan, CFA

Natural gas gains popularity with power generators (Part 10 of 12)

(Continued from Part 9)

Power companies on coal-to-gas shifting

Major power companies have noted that they’re in the process of shifting their portfolios away from coal towards natural gas. Plus, they commented on significant effort being taken towards making their existing coal assets less pollutive. They also commented on the current dynamic between coal and natural gas prices, and how they’re responding to it.

Duke Energy (DUK) at an annual investor and analyst meeting dated February 28, 2013

  • “The pie chart shows the transformation of our regulated fleet from 2005 to 2015. This is a result of fleet modernizations and the retirements of older, less efficient coal and oil units. As Keith will explain, we’re well along in making a big shift from a heavily coal-based mix to a balanced, diversified portfolio with much less coal and more natural gas. Coal share declines from about 55% in ’05 to 38% in ’15. Gas share grows from 5% in ’05 to 24% in ’15.”
  • “We are addressing the fact that our coal plants are no longer dispatching as base-load units especially in Carolinas, and you can see from the chart on the bottom right of the slide that the capacity factor for our coal plants dipped below 50% last year… As a result of low natural gas prices, our natural gas plants are operating as base-loads with capacity factors in the 70% to 80% range. Now, this may be the new normal and if it is we are ready. If it is, we are going to need to find efficiencies though at our coal plants and I can tell we are very focused on that and those efficiencies will go above and beyond what we are looking at from a synergy target perspective.”
  • “Our coal fleet today is clean, but it’s getting cleaner. The pie charts on the lower right of the slide show you that over 80% of our coal is scrubbed today and that number is going to go to 96% by 2015.”

American Electric Power (AEP) at a conference dated September 12, 2013

  • “We expect to spend something like… $4 billion to $6 billion or $45 billion between 2012 and 2020 to make sure that the coal generating assets that we have in our portfolio are compliant. So keep those in the mix. Right now I think Mark mentioned our percentage of coal generating assets as a part of the total fleet is like 60%, 65%. I think by 2020 our projection is if that goes down to about 46% so I think that because we’ve had plant retirements the coal pieces has declined. And I think we have had a decent more diversity thrown into the mix in terms of beefing up the other side of the house that’s not coal driven… I think the natural inclination is to lean toward natural gas.”

Southern Company (SO) at an annual stockholders’ meeting dated May 22, 2013

  • “We’ve already made a big bet to natural gas. You all may know that we were, six years ago, 70 percent of our energy from coal and now we’re  at 35 (percent coal)—16 percent from natural gas (six years ago), now we’re at 45 to 47. How much more of a big bet do you want to make on natural gas?”

Southern Company (SO) on a 4Q12 earnings call dated January 30, 2013

  • “We continued the ongoing transformation in our generation mix, generating more energy from natural gas than coal for the first time in our history, largely as a result of our diverse portfolio and the ability to respond to low gas prices. Our customers benefited from approximately $1 billion in fuel savings as compared with 2011.”

Continue to Part 11

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