If money were the only object, most coal plants providing power to the U.S. grid could be replaced today with regional or local renewable energy made cheaper by tax credits and other funding in the Inflation Reduction Act, according to a new study from industry analysts Energy Innovation.
Based on 2021 costs for operating 210 coal plants across the U.S., the new Coal Cost Crossover 3.0 report found that all but one of those plants “are more expensive to run than replacing their generation capacity with either new solar or wind.”
“It costs more to continue to run coal than it would be to build entirely new wind and solar resources,” said Michelle Solomon, an Energy Innovation policy analyst and lead author on the report.
Many U.S. utilities are already planning to close their remaining coal plants by 2035, the timeline President Biden has set for the U.S. grid to be powered 100% by clean electricity. Energy Innovation’s previous Coal Cost Crossover 2.0 report, issued in May 2021, found that 80% of the 235 plants then in operation were more expensive to run than new solar or wind.
With its more dramatic results, the new report does not push for any accelerated timelines, but “it tells every utility in the country that they need to take a hard look at every single coal plant,” Solomon said. For “every single coal plant, the energy is more expensive than renewables.”
The report also argues for the added benefits of “local” renewables, defined as solar, wind or storage sited within a 30-mile radius of a closed or soon-to-close coal plant. These include the potential jobs and tax revenues for communities as well as the potential for shorter interconnection times.
Both economics and the environment are driving the phaseout of coal in the U.S. In the last decade, the share of U.S. electricity produced by the dirtiest fossil fuel has plummeted from 50% to 21.9%, as coal has been replaced by natural gas and renewables, according to the U.S. Energy Information Administration.
But even at that lower level, coal still accounts for 60% of greenhouse gas emissions from the U.S. electric power sector and 20% of emissions from the nation’s energy consumption overall.
Looking ahead, EIA says, “23% of the 200,568 MW of coal-fired capacity currently operating in the United States has reported plans to retire by the end of 2029.”
Those plants are in 24 states, including several that have not set targets for utilities to provide a specific percentage of their power from renewable or other clean energy sources, EIA says.
Energy Innovation sees the IRA as providing new economic momentum to take more coal offline. Both solar and wind owners can now choose between a 30% investment tax credit, more of a capacity-based incentive, or a performance-based 2.6-cent/kWh production tax credit, providing they pay workers prevailing wage and offer registered apprenticeships.
The law’s bonus incentives for locating new renewable projects close to “energy communities” that have been affected by the closure of coal mines or coal-fired power plants could further cut costs, while driving “up to $589 billion in clean energy investment” in these areas, the report says.
States across the country could see billions of dollars in new investments by replacing coal plants with solar, according to Energy Innovation. | Energy Innovation
Money saved from coal plant closures could also be used to take advantage of the IRA’s energy storage investment tax credit, also 30%, to finance up to 137 GW of four-hour duration storage, which could replace 62% of the coal fleet’s 220 GW of nameplate capacity, the report said.
Still another big plus is that new local solar or wind projects could use existing power lines, cutting interconnection time and costs and reducing the need for new transmission and distribution lines, the report says.
“The combined impacts of energy community, labor and domestic content bonuses reshape solar economics in coal communities,” the report says. “The median cost of new solar in these communities is about $24/MWh with low variance, while the median marginal cost of coal is $36/MWh with higher variance.”
In this context, Solomon said, “variance” means “the coal plant costs vary more than solar costs.”
Stranded Assets and Reliability
But Michelle Bloodworth — president and CEO of America’s Power, a coal industry trade association — called the report “misleading because it does not account for all the costs and challenges associated with replacing the coal fleet with wind and solar.”
Replacing coal with renewables could cost at least $1 trillion and another $300 billion for the new transmission that would be needed, Bloodworth said in an email to RTO Insider. “Just as important, the report fails to consider the value of reliability, fuel diversity, fuel security and high-capacity value of the coal fleet, none of which can be matched by wind or solar.”
Solomon countered that Energy Innovation’s calculation of the cost of renewables, based on computer models developed by the National Renewable Energy Laboratory, does account for the all-in capital investments that will be required. The report also recognizes that the early closure of coal plants can leave utilities with millions in unpaid debt on their balance sheets and embedded in the higher rates their customers may have to pay as a result.
The IRA provides two potential options here, the report says. The law’s Energy Infrastructure Reinvestment program provides low-interest loan guarantees to utilities replacing old energy infrastructure with new projects that “avoid, reduce, utilize, or sequester air pollutants or anthropogenic emissions of greenhouse gases,” according to the Department of Energy.
The program is administered by DOE’s Loan Programs Office which, under Director Jigar Shah, has already set rigorous guidelines for applications. During a recent interview, Shah said the office takes 12 to 18 months to process a typical loan application.
For electric cooperatives, which may be particularly dependent on coal for their electricity supply, the IRA also provides $9.7 billion in loans and grants for the purchase of renewables or other zero-emissions energy systems. The Rural Utilities Service at the Department of Agriculture is administering this program and has recently finished a series of stakeholder roundtables to gather input on its implementation.
Bloodworth’s concerns about reliability are a more complex issue that Energy Innovation acknowledges as a major challenge for utilities and grid operators moving from coal to renewables. Delaware’s 445.5-MW Indian River Generating Station, owned by NRG Energy, is a case in point, the report says. Though it was scheduled to close in June 2022, PJM requested it stay online through 2026 to ensure system reliability while transmission upgrades were made.
The RTO has “an established 90-day process to review generator retirement requests and their potential effects on the transmission system … to be sure reliability is not impacted,” according to Jeffrey Shields, media relations manager for PJM. “This does not have anything to do with what kind of generator it is; it is a matter of how the system will be impacted without the particular generator providing power in a certain area.”
In the case of Indian River, continuing to run the plant “was the only real solution to address immediate reliability needs until a long-term solution is built,” Shields said in an email. “Longer-term replacement generation could certainly include solar, offshore wind or hybrid renewable units paired with storage.”
While the plant is still online, it is run under a reliability-must-run agreement, which means it is run only in situations where system reliability cannot be provided by other sources; for example, in a “capacity emergency when … scheduled reserves are not sufficient,” according to Shields.
Delaware ratepayers are paying an estimated $6.45/month extra on their electric bills, according to the Delaware News Journal, which called the plant “one of the state’s top polluters.”
Energy Innovation also said Indian River was “the eighth most expensive plant we analyzed due to low capacity factor and high estimated fuel costs.”
“Local replacement of this plant [with wind or solar] could assuage reliability concerns by providing generation and capacity needs at the same location on the grid,” the report says. “Our local analysis finds that 246 MW of storage could be funded via savings,” which could provide more than half of the plant’s capacity.
The Takeaway
Making such diversified portfolios of renewables a core element of regular resource planning is one of Energy Innovation’s recommendations for utilities, grid operators and regulators going forward. Both local and “regional” siting is also recommended, as are continuing efforts to improve and streamline interconnection processes.
Specifically, Energy Innovation calls on grid operators to “improve methods to assess reliability and resource adequacy reflecting the reliability value of renewable portfolios and valuing the reliability attributes of a high-renewables grid.”
“PJM has already begun this process,” Shields said. “We have adopted the effective load-carrying capability rating method to better reflect the reliability capacity value of renewables; and we will be making an additional filing at FERC to make sure that capacity matches up with the existing Capacity Interconnection Rights.”
Renewable projects that are able to use a retiring coal plant’s interconnection rights also “may reduce or eliminate the amount of network upgrades required for [a] new interconnection” Shields said. Fewer network upgrades could help to move a project up in the queue under PJM’s new first-ready, first-served approach to interconnection, he said.
The takeaway here, while hopeful, is that long interconnection queues and the need for transmission upgrades and expansion are systemic problems that will continue to slow the transition to clean energy as the IRA’s incentives and regulators’ efforts at change work their way through a risk-averse, reliability-focused industry.
But the Energy Innovation report makes clear, among the many challenges an accelerated phaseout of coal could raise, the increasingly lower cost of renewables, combined with local siting could be critical drivers for finding solutions faster.
