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The US coal fleet is running out of time and money. What comes next?

New analysis shows that four out of five U.S. coal plants cost more to run than new local renewables.

Amanda Myers, Mike O’Boyle
6 min read
The US coal fleet is running out of time and money. What comes next?

Amanda Myers is senior policy analyst and Mike O’Boyle is director of electricity policy for Energy Innovation. This contributed content represents the views of the authors, not those of Canary Media.

Americans are overpaying for dirty energy as many of the country’s major utilities continue to prop up uneconomic coal plants. New research shows that 80 percent of U.S. coal plants (72 percent of nameplate capacity) now cost more to run compared to replacement with new local renewables. Coal economics are also worsening faster than been previously projected, thanks to fast-falling wind and solar prices. It’s time to switch to cleaner, cheaper resources to protect our climate and public health, while also saving consumers money.

Research from the University of California, Berkeley, GridLab and Energy Innovation shows that a coal-free grid running on 80 percent clean electricity by 2030 is achievable, dependable, and affordable. Leading utilities recognize the rapid shift in coal economics and are acting accordingly. The CEO of NextEra Energy, who manages the country’s largest electricity utility by market value, recently remarked: “There is not a regulated coal plant in this country that is economic today...when it's dispatched on any basis, not a single one.” Xcel Energy just announced its latest batch of planned coal plant retirements across Colorado and Minnesota. And financial institutions are similarly noting the coal cost crossover — Morgan Stanley just announced it doesn’t see a future for U.S. coal beyond 2033.

And while the U.S. coal industry has fought to stay alive, the United Mine Workers of America, the nation’s largest coal union, just announced it supports a renewable energy future provided that workers gain good-paying jobs in return — a remarkable shift. Coal is on an indisputable decline, and fast-falling wind, solar, and battery costs mean the vast majority of our existing coal fleet can be rapidly replaced with new clean energy resources, without adversely impacting consumers.

Modeling consistently shows that a coal-free future is achievable and saves money, but these retirements simply won’t happen without policy reforms, and communities must not be left behind. As coal economics continue to worsen and retirements accelerate, policymakers must place a strong emphasis on a just transition.

Evaluating the cost-competitiveness of renewables versus coal

Our economic analysis comparing coal to renewables answers two main questions: to what extent can solar or wind displace the energy produced by a coal plant at lower cost, and what happens when you restrict the evaluation of wind and solar resources to within the local region?

To help answer these questions, we compared the "going-forward" costs of all 235 U.S. coal plants to the new wind and solar levelized costs of energy (LCOE) in the same local region as the coal plants. Wind and solar LCOE are all-in estimates of the cost of energy output in megawatt-hours accounting for all capital expenditure and operations and maintenance costs.

This relatively simple look at the cost of renewables is a first step toward resource cost comparison. The "going-forward" costs of coal plants consist of the sum of three principal components: the cost of fuel, the cost of operations and maintenance, and the cost of capital investments needed to continue operating.

This comparison shows how cheaply we can get sufficient local clean energy to replace the energy generated by each coal plant, which in most cases comes at a significant (greater than 25 percent) cost savings and is a jumping-off point for state and local discussions about retiring coal.

Coal is quickly losing the price war to renewables across the country. The calculated plant-level weighted average LCOEs for wind and solar, and the plant-level going-forward coal cost shows 182 existing coal plants are more expensive to continue operating compared to building new nearby wind or solar plants that fully displace current annual generation from those coal plants. An online data visualization allows anyone to explore and interact with the results.

Just two years ago, our analysis forecast roughly three quarters of the U.S. coal fleet would be uneconomic compared to renewables in 2025, but those expectations were met in 2020, five years earlier than projected. The coal cost crossover is happening even faster than expected.

The public health and climate consequences of coal

Coal plants emit greenhouse gases that accelerate climate change along with toxic pollutants like nitrogen oxides (NOX) and sulfur dioxide (SO2), which cause respiratory distress and disease. Retiring the U.S. coal fleet by the end of this decade can help avoid the worst climate-change impacts and generate immediate public health improvements, demonstrated by many studies of coal plant retirements. Our analysis shows retiring the entire U.S. coal fleet would reduce U.S. power-sector carbon dioxide emissions by 61 percent, NOX emissions by 50 percent and SO2 emissions by 74 percent.

Other coal plants pollutants not included in this study include coal ash and particulate matter, which are associated with acute public health and environmental damages. Studies have shown that coal plants are more likely to be adjacent to low-income communities and communities of color, placing a disproportionate burden on those communities. Early coal plant retirement not only makes financial sense, but it is also an important start to correcting severe environmental injustices.

When the external public health and environmental costs of coal plants are considered, zero coal plants make economic sense to run compared to new renewables. We found that plausible external costs range from $30 to $146/megawatt-hour (across three different credible studies from The University of Tokyo, Climate Advisers and Energy Innovation’s Energy Policy Simulator). External costs are often greater than plant operating and fuel costs. Adding even the low-end averages of this cost range to the going-forward plant costs pushes all plants into “uneconomic” designation and invalidates any remaining argument for keeping these plants running.

Policy can accelerate the transition to a cleaner, cheaper grid

Policymakers play a key role in assessing the comparative economics of various generation resources and creating a policy pathway toward clean, reliable and cost-effective portfolios. Though market forces put pressure on existing coal facilities, electricity markets are not sufficiently competitive to ensure these plants retire to maximize consumer, community and environmental benefits.

The first step in accelerating the clean energy transition is conducting a detailed analysis comparing the true cost of continued operation of utility-owned or contracted coal plants against competitively procured clean energy portfolios. This can happen in a planning proceeding or at the investigation of a motivated utility regulator. While public data presents compelling evidence to identify coal plants that are likely uneconomic, this comparison is necessary to justify replacing assets. Reliability depends on sufficient generation and ability to deliver power to customers at the right time. Establishing a public forum for vetting accelerated retirements is key to understanding the next steps to manage a just transition away from uneconomic coal assets.

Once the economics of coal are established, two key policies can help minimize negative community impacts of the coal-to-clean transition, while facilitating replacement with least-cost clean energy portfolios.

Regulators can first holistically examine these economics by requiring utilities to undertake all-source procurements. These procedures require utilities to solicit competitive bids from diverse technologies when procuring resources to replace retiring coal plants. Recent resources from Energy Innovation, RMI and Lawrence Berkeley National Laboratory have all examined case studies and distilled policy design lessons for this emerging best practice. The policy design principles are flexible to accommodate public policy needs such as employment and location — for example, Colorado plans require the monopoly utility to solicit renewable bids in Pueblo County, which will be most affected by lost coal mining and power plant jobs.

An important second step is accounting for the remaining, undepreciated investment in the plant. If unaddressed, early-retired plants become "regulatory assets" on which regulated utilities continue earning a rate of return. Securitization is an alternative approach whereby regulators authorize issuance of bonds with low-interest rates, which are used to replace remaining capital invested in the plant. These bonds are then repaid over time by ratepayers, reducing any potential rate impact driven by accelerated recovery of remaining capital invested in the plant. Securitization legislation was recently adopted in Colorado, Kansas, Montana, and New Mexico and has been successfully applied to early plant retirements in Michigan.

By combining holistic cost analysis, competitive procurement, and coal asset securitization with a focus on just transition, policymakers can craft a deal that balances utility, consumer, environmental, equity and community interests. Immense savings are available nationwide, with ample opportunities to reinvest locally in replacement clean energy portfolios.

Coal fails on all metrics

Coal is a highly polluting and expensive way to generate electricity. The accelerating coal cost crossover demands attention from policymakers and consumers alike. We will not meet our climate commitments without removing coal from our electricity mix, and shifting to wind and solar benefits consumers’ pocketbooks. Policymakers have the tools to act — and this research shows that they ought to have the will to act as well.

(Article image courtesy of Jonathan Kemper)

coalrenewable energyclimate changedecarbonizationenergy economicsutilities