The coal-fired power industry in the U.S. is facing the biggest plunge in asset values in a decade, risking billions of dollars in pollution-control spending by utilities such as Exelon Corp. (EXC) and American Electric Power Co. (AEP)
An indication of how much new emissions rules and cheaper natural gas have hammered the value of coal-burning generation will come when Exelon announces the results of the first big sale of U.S. coal-fired power plants in four years.
Exelon, the largest U.S. power company, may have to take a 40 percent discount for three Maryland plants it’s seeking to sell by the end of August. Bidders including NRG Energy Inc. (NRG) have offered $600 million to $700 million for the units, which have a fair value of $1 billion, said Travis Miller, Chicago- based director of utilities research for Morningstar Inc.
“This is going to be the first meaningful transaction for coal assets since the downturn,” Julien Dumoulin-Smith, a New York-based analyst with UBS AG, said in a phone interview. “You can get a little anxious about what the repercussions are.”
Constellation Energy Group, which Exelon bought this year, spent $1 billion on the plants to keep them in compliance with pollution rules. Their sale, the biggest since 2008, comes in an era of more stringent pollution rules and competition from facilities burning gas, a fuel cost that is near 10-year lows.
The transaction may help American Electric, GenOn Energy Inc. (GEN) and FirstEnergy Corp. (FE) determine whether the cost of added pollution controls to keep coal plants operating is worth it. U.S. utilities are switching to burning gas for electricity and preparing to retire 33,000 megawatts of coal-fired generation after the U.S. Environmental Protection Agency tightened rules for mercury and other toxins, Dumoulin-Smith said.