The coal end game: Building new renewables is cheaper than running existing coal plants

The writing is on the wall: Coal generation in the U.S. has reached a “coal cost crossover” point, meaning the all-in cost of new local renewables is becoming less than the mere operating costs of old coal. Utilities and their regulators must adapt to changing energy economics before they’re stuck with stranded assets.

New wind costs as low as $15 per megawatt-hour (MWh), and solar costs as low as $28/MWh. Those prices are lower than the combined operational, maintenance, and fuel costs of generating electricity from most existing coal-fired power plants.

Because of this clean, low-cost competition, 74% of existing U.S. coal capacity was “at risk” in 2018, meaning the plants could be replaced with new local wind or solar projects built within 35 miles of each existing plant. By 2025, at-risk coal increases to 86% of the U.S. coal fleet, even as federal renewable energy tax credits phase out.

Note that this analysis is based on renewable energy available within 35 miles of each existing coal plant. Building renewables in the immediate vicinity of coal plants implies wind and solar could replace lost jobs, expand the tax base, and reuse transmission—all within the same utility territory.

That is a remarkable finding, and it is a wake-up call for utilities and their regulators. Any coal plant failing the cost crossover test is a candidate for a clean replacement—and doing this cleverly means consumers save money while jobs are preserved.

Some forward-looking utilities are getting ahead of this trend: Xcel Energy is targeting 100% renewables by 2050, PacifiCorp revealed 60% of its coal fleet is uneconomic and is reviewing its options, Indiana’s NIPSCO wants to replace all of its coal with clean energy in ten years, and even Idaho Power wants to close all of its fossil fuel generation by 2045.

The coal crossover test is just the first step in thinking about closing existing coal. Replacing coal output with new wind and solar energy is complex in practice; policymakers must find ways to enable utilities to profitably retire uneconomic coal generation. Coal securitization legislation introduced in Colorado’s state legislature and passed in New Mexico’s state legislature, endorsed by Governors Polis and Lujan-Grisham, is one example of smart policy to speed the transition and reduce customer costs, all while keeping utilities whole.

Our power sector decarbonization program, America’s Power Plan, recently released four research briefs detailing existing financial tools to help utilities shift from coal to clean:

  • Analyzing publicly available financial information can help policymakers and utility stakeholders identify where running existing generation (particularly older, less efficient coal-fired plants) costs more than replacing it with wind or solar: Utility Financial Transition Impact: From Fossil to Clean
  • Modifying depreciation schedules is an important tool for transitioning away from older assets such as coal plants, to cheaper resources such as wind and solar:  Depreciation and Early Plant Retirements

Regulators, utilities, and investors must get ahead of the coal crossover while helping customers and affected communities. Using the right financial tools can speed the transition and help make workers, companies, and the public whole.

 

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Hal Harvey is the CEO of Energy Innovation. He is also a Senior Fellow for Energy and the Environment at the Paulson Institute. Previously, he was the founder and CEO of ClimateWorks Foundation, a network of foundations that promote polices to reduce the threat of climate change. From 2001-2008, he served as Environment Program Director at the William and Flora Hewlett Foundation. From 1990 through 2001, Hal served as founder and President of the Energy Foundation. Hal has served on energy panels appointed by Presidents Bush (41) and Clinton and has published two books and dozens of articles on energy and national security issues. He is President of the Board of Directors of the New-Land Foundation, and Chairman of the Board of MB Financial Corporation. Hal has B.S. and M.S. degrees from Stanford University in Engineering, specializing in Energy Planning.

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