Coal’s "Rebound" Is Over As Plant Closures Come Roaring Back. Time To Unlock A Just Transition.
- Mar 24, 2022 5:07 pm GMT
Coal roared back to life in 2021, showing it will be part of our energy mix for years to come. Or, at least that’s what industry proponents say.
Even though the Ukraine invasion has given coal executives a macabre opportunity to use war for self-promotion, 2021’s rebound was just a fleeting respite from coal’s continuing crash – plant closures are once again accelerating across the United States.
The fundamentals of coal’s decline are unequivocal: It simply costs more to dig up rocks, crush them into powder, and burn them for power than it costs to generate clean energy. This is especially true when environmental costs come into play – utilities can’t economically justify keeping plants open.
But America’s transition from coal to clean is also a watershed moment in our history to generate good jobs for workers dependent upon the coal industry, stable tax income for the communities that hosted coal facilities, and clean economic growth for utilities. All three are possible with the right policies.
Coal closures accelerating toward a “record plunge”
U.S. coal power capacity peaked in 2011 at more than 317 gigawatts (GW), but steadily declined nearly 30% ever since, hitting a record high of 19.3 GW closed in 2015 and 13.1 GW closed in 2020. For context, coal’s share of U.S. electricity generation has plummeted from 50% a decade ago to less than 20% today.
Then came coal’s 2021 rebound. Emissions rose as the U.S. economy came back to life from the COVID-induced recession, and coal-fired electricity generation grew 17% according to Rhodium Group analysis, increasing for the first time since 2014. Because plants ran more often than they had over the past decade, utilities closed just 4.6 GW of capacity last year.
But the fundamental economic pressures pushing coal out of the U.S. electricity mix remain unchanged – 80% of existing coal plants across the country cost more to continue running than replacing them with new local wind or solar generation. Plant closure announcements have resumed their march to zero, with the U.S. Energy Information Administration (EIA) reporting 12.6 GW of coal capacity will close in 2022, representing 85% of all electric generation capacity retirements this year.
Coal’s outlook is even more grim over the next several years. S&P Global Market Intelligence reports utilities will close 51 GW of coal power between 2022 and 2027, followed by a “record plunge” in 2028 with more than 23 GW scheduled closures. Federal rules to keep coal ash and toxic metals out of drinking water will take effect that year – regardless of Supreme Court decisions on the U.S. Environmental Protection Agency’s authority to regulate greenhouse gas emissions – and many utilities are not investing in compliance upgrades for plants that keep losing money.
When utilities ignore coal’s economic and regulatory headwinds, they risk punitive consumer cost spikes. In West Virginia, where coal supplies 89% of statewide power but plants require hundreds of millions in mandatory upgrades, power prices have risen up to 122% in recent years.
Paul Chodak, executive vice president of generation at American Electric Power, told S&P the necessary investments to keep plants online and comply with regulations “was not justified” compared to forecast market prices and alternatives like renewable energy. Other utilities seem to agree with him.
Duke Energy, the country’s second-largest utility, recently announced it will close its 11 coal-fired power plants by 2035 – 13 years earlier than previously expected. Duke says it will replace that generation capacity by more than doubling its renewable energy portfolio to 24 GW by 2030.
Georgia Power, one of America’s most coal-reliant utilities, similarly announced that it would close all 14 of its coal plants no later than 2035 and double its renewable energy generation with up to 6 GW of solar and wind.
Smart policy can help coal-dependent utilities and communities transition
The data also shows we can close coal plants and maintain a reliable power supply, while keeping prices low and creating jobs. A meta-analysis of 11 studies from universities, think tanks, and other organizations agree that closing all coal by 2030 and replacing that generation with clean energy is feasible. Power prices would stay roughly the same or even decline, and this transition would add 500,000 to 1 million new net jobs per year, while generating up to $1.5 trillion in new net investment.
However, smart policies are required to help utilities navigate the coal-to-clean shift, keep customer costs low, and ensure a just transition with new economic opportunities for the communities and workers who depend upon the coal industry. Utilities, their regulators, and state policymakers have multiple options to address early coal retirements and facilitate the financial transition.
State legislatures can allow utilities to refinance outstanding debt on existing coal plants by authorizing ratepayer-backed bonds on uneconomic but as-yet undepreciated generation. “Securitization” as it is commonly known, was used extensively to retire stranded utility assets in the 1990s and 2000s, is already being used to help utilities retire coal plants in states like Michigan, and has been authorized in states like Colorado and New Mexico.
State regulators can also allow utilities to change depreciation schedules so that they can free up capital for clean energy investments without forcing customers to continue paying off the “mortgage” on uneconomic coal plants. Utilities can then refinance that mortgage to reduce consumer rates by replacing equity with corporate debt in a “debt for equity” swap.
If utilities are allowed to reinvest capital from uneconomic coal assets into solar or wind when the cost of building new renewables is cheaper than operating existing coal, they can swap “steel for fuel” on early coal plant retirements to add value for investors and customers and reduce operating costs. An emerging alternative policy option in this field is the “solar for coal swap” that could be particularly helpful for utilities to leverage private capital for solar investments that pay a better return on investment over time.
This approach can help facilitate a just transition for coal-dependent workers and communities if done right. In Colorado, for instance, state regulators have approved utility plans to close coal plants and build replacement generation within the same local area, ensuring clean energy jobs and tax revenue help replace those lost to coal closures.
Economic solutions must go beyond utilities retiring coal plants to ensure a just transition for the communities that host coal plants and mines, and the workers who depend on them. Policy roadmaps to create a fair economic transition include the Just Transition Fund’s Blueprint for Transition, the National Economic Transition Platform created by a coalition of organizations, and the Reimagine Appalachia coalition’s blueprint. Congress is also currently debating federal energy provisions including economic transition measures, which could build on President Obama’s Power Initiative for coal communities.
America’s coal closures aren’t ending – it’s time to think about what’s next
When even Peabody Coal, the world’s largest private coal company, announces it will invest in 5 GW of new solar and storage capacity, it’s time to admit America’s coal-to-clean transition is accelerating, whether fossil fuel industry proponents admit it or not.
Global events and the oil and gas price volatility they create may slow that trajectory a bit, but only temporarily. Coal’s long-term downward spiral will continue as the world transitions to cleaner energy and the energy security, stability, and sustainability it provides.
But it’s not enough to push coal plant closures. Utility regulators, state officials, and the utilities themselves must be actively engaged now in implementing the policies that can facilitate a shift away from coal that keeps utilities in business, avoids customer rate spikes, and ensures a just transition for the workers and communities who have economically depended on coal.
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