The Environmental Protection Agency’s Clean Power Plan (CPP) remains in limbo as to its ultimate fate, though talk of its demise has intensified of late with news that a multi-state coalition has requested that President Donald Trump not enforce the rule. If the CPP does indeed meet its end later this year, this by no means signifies a wholesale return to fossil fuels. However, we are likely to see much more of one fossil fuel in particular.
More Natural Gas Generation Likely
There is an expectation that we will see substantial growth in power generation from natural gas, which will continue to displace much of what’s left of coal generation. But this development has little to do with the CPP and more to do with simple economics. The price of gas fire generation has become so much more competitive that older less efficient coal plants either have already been retired or are heading down that road.
The CPP’s overarching intent was to comply with the Clean Air Act’s requirement of reducing harmful emissions like carbon dioxide, with coal-fired generation emitting the most carbon dioxide. But using solely less carbon-intensive technologies like natural gas wouldn’t be enough under the CPP, hence the onus on lower emitting technologies such as renewable energy. The common denominator here is less carbon dioxide, and if it’s not the CPP, more than likely some other plan will be put in place to see this initiative through.
Recently constructed coal-fired facilities can actually still be competitive in today’s market. For instance, if a tax were implemented for carbon dioxide emissions, any kind of coal-fired combustion technology would become much less competitive. In the northeast U.S. we already have the Regional Greenhouse Gas Initiative, a cooperative effort among participating states to cap and reduce CO2 emissions from the power sector by pricing and trading emissions allowances. But whether it’s a cap-and-trade program or tax or some other structure, we’re likely to see emissions pricing of some kind. How severe the pricing is will go a long way in determining whether coal facilities continue to be retired or if they stay competitive.
Appetite for Renewables Still Robust
Seemingly lost in this equation is what happens to renewable energy generation if and when the CPP ceases to exist. The short answer is renewables are not going anywhere, either. There is still quite a robust market for renewables. States like California have already implemented their own aggressive renewable energy portfolio standards, though appetite for renewables across the country varies considerably. California is far and away the most receptive to renewables against a more tempered response among much of the rest of the country. Nonetheless, much of our society is still interested in using renewable energy. So don’t expect households with solar power panels to retire them anytime soon. Part of the reason is that prices on solar power panels have dropped precipitously and are much more affordable today.
One interesting development worth note revolves around what’s known as a feed-in tariff, which is the price that people with solar power panels are paid for any excess generation that they do not use. The excess energy is then fungible and goes back into the system for other households to use. Efforts have been made to try and moderate the feed-in tariff, though it has led to some adverse consequences. Nevada is a notable example.
Nevada’s feed-in tariff was equal to the full retail price of electricity. Eventually, the state’s public utility commission (PUC) determined the feed-in tariff was an unjust reward for families using solar power generation. But their attempt to disincentivize users backfired, resulting in too low of a feed-in tariff. Nevada’s PUC has since taken steps to amend their stance, though many solar rooftop companies in Nevada have already gone out of business as a result. This is also playing out in Hawaii. The overarching theme here is that while the overall economics of solar generation will change, the cost of solar generation will continue to drop.
The likely demise of the CPP does not mean that we are returning to the days when coal-fired generation was the norm. The appetite for renewables is still very strong and there remains a push toward cleaner generation overall even with no statutory mandate.
This article was republished with permission from Fitch Ratings.