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COAL

A raw coal pile near Wylo, West Virginia. MUST CREDIT: Bloomberg photo by Andrew Harrer

As silent factories and deserted offices hobble demand for electricity worldwide, the biggest loser is coal.

In the U.S., coal's share of power generation has dropped more than 5 percentage points since February on the nation's biggest grid while output from natural gas plants and wind farms held steady. In Europe, it's down 2 points. Even in China and India, where coal still dominates, it's losing market share during the pandemic.

It comes down to cost. Coal power is more expensive than gas and renewables in many places and, hence, is the first fuel priced out of the market when demand falls. Its plunging use amid the lockdowns is a boon for efforts to fight climate change, hastening a shift that was already underway to weed out the dirtiest fossil fuel.

"It's accelerating coal's demise," said Hannah Newstadt, a power market analyst for Genscape Inc.​

In the U.S., coal is now supplying just 14% of power on the grid serving 65 million people from Illinois to New Jersey. That's down from almost 20% in February, according to a Bloomberg analysis of data from the grid operator, PJM Interconnection. It's the only major fuel to slump.

Coal miners are already feeling the pain. While output has been sliding for years, the decline has been exacerbated since states began shutting down wide swaths of their economies.

Production at mines has plunged 21% in the past three weeks. On Thursday, Arch Coal Inc., the second-biggest U.S. miner, reported its biggest quarterly loss since 2016, suspended its 2020 forecast and said it initiated a "voluntary separation" program to slash staff by 30%.

While many utilities are still contractually obligated to buy the fuel, many shipments are just piling up on the ground at power plants, unused.

"U.S. coal production is in free-fall," Mark Levin, an analyst with Benchmark Co., wrote in a research note Tuesday.

In Europe, coal's share of power generation has dipped to 12%, from 14% a year ago, according to data from Wartsila Oyj, the Finnish energy technology company.

The decline is particularly sharp in Germany, where electricity from hard coal and lignite, sometimes called brown coal, plunged to 18% of net generation in the first two weeks April. One year ago, they accounted for 35%.

They just can't compete with gas. During the last week of March, the short-run marginal cost of coal-fired generation was 31.80 euros ($34.33) to 33.50 euros per megawatt-hour, according to BloombergNEF analyst Jahn Olsen. Gas plant costs topped out at 25.30 euros per megawatt-hour. Part of the reason coal is so much more expensive in Europe is generators need to buy about double the carbon-dioxide permits to burn it compared to gas.

​In India, coal's share of the power mix slipped to 65% from 71% in the month since Prime Minister Narendra Modi announced lockdowns to contain the outbreak. The country's coal imports for power plants in March fell 28% from a year earlier. The share from from renewables, nuclear and hydropower rose. And in China, thermal power output, which is mostly from coal, slumped 8.2% in the first quarter while solar and wind gained.

Coal had struggled to compete for years. But it's gotten even tougher as gas prices have plunged about 35% since early November. When it comes to renewables, power producers don't want to cut wind and solar when demand ebbs because they have no fuel costs. And nuclear plants are like massive locomotives that can't suddenly speed up or slow down.

So when output has to change, coal typically draws the short straw.

"It's going to be the first one they turn off," Bloomberg Intelligence analyst Kit Konolige said.

Coal plants aren't the only ones getting squeezed. In regions with little or no coal power -- including New York, New England and California -- gas plants are bearing the brunt of lockdowns. And in Europe, Electricite de France and Vattenfall are shutting down reactors this summer because of low demand and slumping prices.

But coal is getting hit hardest.

"You have coal looking very much like the energy market's loser," Carlos Perez Linkenheil, a senior analyst at Berlin-based Energy Brainpool, said in an interview.

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