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Study Shows Navajo Generating Station Can Be Competitive With Natural Gas Through 2040 Using Peabody's Reduced-Price Fuel Proposal



April 6, 2017 - Peabody today presented findings from a third-party study demonstrating that the Navajo Generating Station (NGS) can continue to be competitive with natural gas and other coal-fueled power plants through 2040.  The conclusions counter suggestions that natural gas would render the plant uncompetitive and are based on a reduced-price fuel proposal by Peabody and a long-term analysis of the plant's economic performance conducted by Navigant Consulting, Inc.  

Key findings, presented during an Arizona Corporation Commission working group meeting in Phoenix, offer an enhanced view of the plant's projected economic performance to keep the plant operating beyond 2019.  Peabody's efforts to extend operations also include examining the potential for a new plant ownership structure and are aimed at protecting thousands of Arizona jobs, hundreds of millions in annual tribal economic benefits and a critical source of low-cost baseload electricity that moves water across the state.  NGS uses an Arizona energy resource and supports over 825 Arizona jobs at the mine and power plant.   

The study was commissioned by Peabody and analyzed anticipated changes in power and fuel markets affecting the Western United States.1  Based on Peabody's reduced-price fuel proposal and other assumptions outlined in the full report, the Navigant study projects that NGS is expected to:      

  • Remain one of the lowest variable cost generating resources in the region, dispatching at a high level with an annual capacity factor averaging over 80 percent from 2020 to 2040. Power plants with the lowest costs typically dispatch first and have a high capacity rate.


  • Continue to be economically viable with positive operating margins and energy market cash flow savings of $700 million (net present value) to Arizona ratepayers and contributing to capital recovery for new plant ownership.


  • Continue to have variable operating costs below regional natural gas combined cycle plants with the potential for greater non-fuel operating and maintenance cost savings of approximately $160 million through 2040.


  • Provide fuel diversity for the state while minimizing the risk of potential supply disruptions. Essentially all natural gas in Arizona is imported with 70 percent of the supply coming from the El Paso pipeline. Arizona does not have the natural gas storage to buffer price increases or supply disruption. The study authors note a supply disruption in this pipeline was one of the triggering events for the California energy crisis in 2000 and 2001.


  • Protect against interruptibility of the supply of natural gas, price volatility and price increases, which are expected based on increased demand from electric generators, industrial load and liquefied natural gas exports. The study also points to additional risk from lagging natural gas infrastructure.


  • The study also found that continued operation of NGS would be more economical than replacement alternatives in the near and long term. The cost of operating NGS is projected to be $392 million (net present value) below the cost of market replacement of energy and capacity from 2020 through 2040. In each sensitivity case reviewed, the operating cost for NGS is lower than alternatives.


"Peabody's fixed-price proposal represents a very competitive cost of fuel versus alternate generation sources and demonstrates our commitment to finding solutions that will keep the plant operating for the foreseeable future," said Peabody President – Americas Kemal Williamson.  "We are helping to advance a plan with our other stakeholders to make NGS one of the most competitive baseload generating stations in the region and provide reliable, low-cost electricity for the benefit of Arizona, and the Navajo Nation and Hopi Tribe."  

Both the Navajo Nation and Hopi Tribe have expressed support to find solutions to keep the plant operating.  "The power plant and mine that fuels it are vital to the jobs and economic strategy of the Navajo Nation," said Navajo President Russell Begaye.  "The Nation has taken a seat at the table with stakeholders who are committed to keep the plant operating long term. This study provides important new information demonstrating the plant can continue to be competitive well into the future." 

Hopi Tribe Chairman Herman Honanie reinforced the tribe's support for a transparent and collaborative decision-making process.  "The study's conclusions tell us that Navajo Generating Station can remain a beacon for energy production in the Southwest in the years ahead that will continue to operate in a cost competitive manner," Honanie said.  "Working together we can find solutions to see that the plant keeps operating over the long haul."  

The Navajo Generating Station, located in Page, Ariz., is sited on tribal lands using tribally owned coal and began producing power in 1974 with the expectation of running 70 years until 2044.  Both the power plant and Peabody's Kayenta Mine that fuels it create enormous economic benefits for tribal communities and the state.  The mine has approximately 325 primarily Native American employees and provided approximately $430 million in direct and indirect economic benefits in 2016.  

Navigant specializes in energy market research and consulting services, which includes a prior economic study of NGS. The firm has nearly 50 offices across the United States, Canada, Europe, the Middle East and Asia.     

Peabody (NYSE: BTU) is the world's largest private-sector coal company and a Fortune 500 company.  The company is also a leading voice in advocating for sustainable mining, energy access and clean coal technologies.   Peabody serves metallurgical and thermal coal customers in more than 25 countries on five continents. 


1Navigant utilized its proprietary base case market assumptions and price forecasts as the baseline for analyzing NGS and utilized NGS proposed coal prices provided by Peabody. Navigant completed detailed hourly dispatch analysis of NGS to develop energy market projections. Navigant utilized its Generation Knowledge System (GKS) database to estimate Non-Fuel O&M Cost for NGS. NGS fixed costs are assumed to be in line with the median of other coal plants, but transparency on fixed costs is limited.