Peabody Energy, the nation’s largest coal producer, will sell its stake in a southern Illinois power plant that was supposed to be a showcase for “clean coal” technology but instead has become emblematic of the economic challenges facing the industry.
Peabody announced Thursday that it would sell its 5 percent stake in the Prairie State Energy campus for $57 million. It originally invested nearly $250 million in the 1,600-megawatt facility, which opened in 2012.
The buyer is the Wabash Valley Power Association, an electricity generation and transmission cooperative based in Indianapolis.
Peabody, based in St. Louis, has sold about $500 million in assets to shore up its finances as many of its peer companies have gone into bankruptcy. Earlier this month, Arch Coal, the country’s second-largest coal producer, filed for protection from its creditors. Peabody has about $6 billion in long-term debt.
Tom Sanzillo, director of finance for the Institute for Energy Economics and Financial Analysis, a group that favors a transition from coal to renewable energy, said Peabody might have to sell more assets at a loss.
“It’s rough sledding ahead for them,” he said. “They need to get cash, because they’re in a bad financial situation.”
Kelley Wright, a Peabody spokeswoman, in a statement called Prairie State “a strong, long-term project delivering affordable energy to Midwest families as one of the cleanest U.S. coal-fueled power plants.”
The Prairie State plant promised affordable electricity for dozens of Midwest communities, but now many are paying much more for power than they’d anticipated.
“Peabody’s divestment of Prairie State is part of the company’s emphasis on portfolio optimization and is the latest in a series of actions to reshape Peabody’s portfolio,” she added.
The Prairie State plant promised affordable electricity for dozens of Midwest communities, but now many are paying much more for power than they’d anticipated because of cost overruns in building the plant and a boom in cheap natural gas.
Municipal utilities in Missouri, Illinois and Kentucky that signed 30-year agreements to purchase power from the plant are struggling to make the payments and in some cases are seeking court actions to free them of their obligations.
Prairie State was also supposed to burn coal produced in Illinois, which few power plants in the state do. Although Illinois produces more than 50 million tons of coal a year and is the nation’s fourth-largest coal-mining state, its power plants burn nearly that much coal every year from Wyoming.
The nation’s coal companies are under increasing pressure from economic forces, including cheap, abundant natural gas produced by hydraulic fracturing. A decline in coal prices has also hurt their profitability.
New federal environmental regulations also are likely to discourage future investment in coal plants.