Most American’s take electricity for granted, assuming when they flip a switch or plug in an appliance power will be available. But behind the power outlets is a huge and complex infrastructure that includes generation, transmission and distribution. In addition, each regional power grid has a “system operator” who makes sure that supply and demand for electricity are always in balance.
To ensure reliability and resilience, every grid in the country draws on a variety of power generation sources — base-load plants fueled by coal, natural gas, or nuclear energy as well as renewables like hydropower, wind and solar. In some parts of the country, however, the generation mix is becoming less diverse, mainly because coal-fired facilities are being retired well before the end of their useful lives.
The number of operating coal plants has dropped dramatically in recent years. In 2010, the United States had 580 coal-fired power plants providing 45% of the nation’s electricity. By March 2018, the number of plants had fallen below 350 and coal’s market share had dropped to 30%, mostly because of competition from cheap natural gas, state efforts to boost renewables, and sizeable subsidies to wind and solar power.
Coal Plants: Shrinking Share
What is more, electric utilities have announced that at least 40 additional coal plants will close or reduce capacity by 2025, and no utility in the country plans to build a new coal plant. Nonetheless, coal remains the second most important source of power after natural gas.
Several recent studies have concluded that the loss of diversity in U.S. power generation, mainly due to the shutdown of coal plants, may lead to higher electricity costs for businesses and consumers while impairing the resilience of the power grid since coal is a “base-load” power source. To avert such an outcome, President Donald Trump has proposed several initiatives to keep coal plants alive.
Scrapping President Obama’s “clean power plan” may extend the life of some coal plants. The administration has also explored a program to subsidize certain coal and nuclear power plants on national security grounds; but this plan was recently shelved due to opposition from the president’s own advisers on the National Security Council and National Economic Council.
Eliminating policies that cause market distortions, in particular subsidies to wind and solar projects, could also help keep more coal in the power mix. But because renewables have widespread political support, that is not likely to happen.
What is needed to keep coal (and nuclear) in the power mix is a pricing system that puts a premium on fuel security and grid reliability. Plants that are “always on,” unlike wind and solar which are intermittent, should be acknowledged and rewarded.
The Virtue Of Reliability
As stated by Commissioner Neil Chatterjee of the Federal Energy Regulatory Commission, “Coal and nuclear need to be properly compensated to recognize the value they provide to the system…and should be recognized as an essential part of the fuel mix.”
This is a particular challenge for states that have deregulated their power markets where some coal plants have closed prematurely because they cannot compete with cheap natural gas or subsidized renewables.
Perhaps the best solution for keeping coal in the generation mix would be to let companies levy a “capacity charge” or some other mechanism to help them cover their fixed costs, mainly embedded capital. Otherwise, as more and more coal plants are shuttered, the demand for power may overwhelm generating capacity, resulting in brownouts and blackouts in many parts of the country.
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- On November 1, 2018