EPA regs may shut 70,000 MW of U.S. coal plants: FBR

NEW YORK Mon Dec 13, 2010 12:43pm EST

NEW YORK (Reuters) - Environmental Protection Agency regulations could cost the industry more than $80 billion and force up to 70,000 megawatts of coal-fired power plants to retire over the next several years, investment bank FBR Capital Markets said in a research report Monday.

Before even considering the potential effect of possible government efforts to reduce carbon dioxide emissions to combat global warming, the report forecast coal retirements would likely reach 45,000 MW, including 12,000 MW already announced.

But, FBR, of Arlington, Virginia, said the number of retirements could vary between 30,000 MW and 70,000 MW depending in part on natural gas prices and the severity of proposed emissions reduction rules.

FBR said utilities would likely install emissions control equipment in larger coal plants, representing about 60,000 MW of capacity, and replace smaller units with natural gas-fired combined cycle gas turbines.

One megawatt powers about 1,000 U.S. homes.

While the EPA regulations will cost billions, regulated utilities are poised to benefit from the stricter rules.

FBR said the capital investments needed to meet the new EPA rules could boost regulated utilities' net income growth by an additional 2 percent to 3 percent when the companies pass those costs plus a state-approved percentage return onto customers.

Specifically, FBR said the regulated units of Southern Co, Progress Energy Inc and Duke Energy Corp stood to benefit from the new EPA rules.

On the merchant side, FBR forecast the retirement of small coal plants could tighten Mid Atlantic and Midwest power markets, helping FirstEnergy Corp and PPL Corp.

Regardless of whether regulated utilities or merchant energy companies install the emissions upgrades or build new power plants, consumers will bear the ultimate cost.

EPA'S TOOL BOX

EPA is working to publish a number of regulations for coal plants that will require the addition of expensive environmental controls or plant shutdowns by 2015, FBR said.

If the EPA implements the Clean Air Transport Rule (CATR) in 2012, energy companies could start retiring coal plants as soon as 2013, FBR said, with a further wave in 2014.

If the EPA follows with new Maximum Achievable Control Technology standards for hazardous air pollutants, particularly mercury, in 2015, FBR said more coal plants could shut.

FBR said the total number of retirements depend in part on the cost of natural gas - one of the most volatile commodities.

Since 2008, gas has traded from about $2.50 to over $13.50.

(Reporting by Scott DiSavino; Editing by Lisa Shumaker)