Coal plant closures are no news in the energy sector, and PPL Corp (NYSE:PPL) is no exception. But with a new announcement outlining the company's plans to cover its cut capacity, let's take see whether this utility will be better off without coal.
PPL Corp previously announced plans to retire 800 megawatts (MW) of coal-fired generation, claiming environmental regulations for the closures -- and it's not alone .
FirstEnergy (NYSE:FE) announced it would shutter 2,080 MW of coal in July, equivalent to a whopping 10% of total generation capacity. The utility estimated that environmental costs for the two plants would've clocked in at $280 million, a price point too high for the stock to swallow .
American Electric Power (NYSE:AEP) is cutting out even more coal, with plans to retire 3,123 MW of capacity by 2016 . While the company called out environmental costs, it also alluded to "current market conditions ," a not-so-subtle slant to the coal vs. natural gas showdown .
But unlike other utilities planning to cut coal and reduce overall supply, PPL Corp plans to replace 80% of its lost capacity with two of the hottest energy sources around: natural gas and solar.
The natural gas takeover
Natural gas is the preferred energy source. With tough regulatory environments for coal, a lack of long-term vision for nuclear, and smaller scale for most renewables, natural gas is taking over energy markets .
PPL Corp announced this week that it plans to build a 700 MW natural gas plant in Kentucky to replace almost all its lost coal capacity. At $700 million, the facility will cost around $1 million per MW in construction costs, complemented by competitive gas prices for operating costs in the years to come.
Coal-centric TECO Energy (UNKNOWN:TE.DL) made a similar move, scoring a double win with a New Mexico gas utility acquisition. Not only is the business regulated (read "steady earnings"), but its reliance on gas gives it extra resilience to environmental regulation and rising energy costs. As a bonus, the utility is even moving into transportation opportunities with 14 gas-fueling stations scattered across the state .
For PPL Corp, this latest announcement comes on top of a previously announced 640 MW Kentucky natural-gas plant, and it's not stopping there. The utility also made public its plans to build a 10 MW solar plant at an existing generation station. At a total cost of $25 million, the solar farm clocks in at a pricier $2.5 million per MW, but PPL Corp will avoid fuel costs down the line while racking up renewable-energy credits .
Diversify, diversify, diversify
PPL Corp enjoys geographic diversity across Kentucky, Pennsylvania, and the United Kingdom , as well as business diversity across unregulated and regulated subsidiaries. While coal represents around 40% of its unregulated competitive fleet in 2012 , its regulated American utilities historically relied on coal for around 95% of its fuel .
But times have changed. With this latest announcement, that number drops to just 59% reliance for coal, with 40% now natural gas and a token 1% for renewables . A cleaner split between coal and natural gas has diversified PPL Corp's energy portfolio, preparing the company for steadier profits in the years to come.
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