A Wall Street Journal article, “Red-Hot Coal Prices Threaten More Increases in Power Bills” focused on higher spot market prices for coal, suggesting that coal is the reason for higher power bills. However, the article failed to explain the small influence spot prices for coal have on U.S. power bills because less than 10 percent of U.S. coal purchased by utilities are spot purchases. More than 90 percent of coal purchases are based on long-term contracts, which lock in prices that are lower than spot market prices. These long-term contracts ensure low and stable prices for coal and help keep power bills affordable.
While spot prices for eastern coal mentioned in the article have increased for a number of reasons, including export demand, spot purchases of eastern coal represent less than four percent of total utility coal purchases. Most utility coal purchases are western coal. Spot prices for western coal have not been affected significantly by global demand because it is more difficult to export western coal than eastern coal.
Over the past five years the monthly average delivered cost of U.S. coal for power generation ranged from $1.97 to $2.17 per MMBtu. These low prices show the benefit to utility customers of long-term coal contracts.
By comparison, the cost of natural gas burned by utilities is directly influenced by spot market prices. Over the same five-year period, the monthly average cost of natural gas for power generation ranged from $2.04 to $15.73 per MMBtu. This volatility shows the considerable influence of spot purchases for gas used to generate power.
The coal fleet provided slightly more than 20 percent of the nation’s electricity last year. In fact, coal produced more than a third of the electricity in 15 states. However, more than 60 percent of the fleet, so far, has already retired or announced plans to retire by 2030. Coal retirements need to stop because coal provides affordable electricity and promotes grid reliability, resilience and energy security.