Fleet Financing

3 Reasons America’s Coal Is Dying – And a Supreme Court Ruling Won’t Save It

The US coal industry scored a rare victory this summer when the Supreme Court issued a ruling limiting the government’s ability to regulate greenhouse gas emissions from power plants. But that doesn’t mean coal-fired power plants will make a comeback.

As an economist, I analyze the coal industry, including power plant construction and pension plans. I see three main reasons why US coal plants will continue to close.

A detail related to the Supreme Court case helps tell the story. The case, West Virginia v. EPA, was about the Clean Power Plan, an Obama-era set of regulations proposed in 2015 that would have required power plants to drastically reduce greenhouse gas emissions. For those powered by coal — historically the biggest source of carbon dioxide emissions in the U.S. power sector — that would likely have meant moving away from coal altogether.

Yet even though the Clean Power Plan never went into effect, coal use has declined so much that the U.S. electric sector has already met the plan’s 2030 goal.

Why the power sector is moving away from coal

At its peak in 2007, coal was responsible for nearly 2 trillion kilowatt hours of electricity generation in the United States, which is equivalent to powering more than 186 million homes for the year.

By 2021, that total had dropped by 55%.

The decline was largely due to an industry-wide shift in power generation from coal-fired units to natural gas and renewables. This change is happening for three main reasons.

1. Price of natural gas

Natural gas prices have fallen significantly – more than 60% between 2003 and 2019 – mainly due to improvements in hydraulic fracturing and horizontal drilling, which allow drillers to extract more gas from shale.

The influx of natural gas has led to a substantial increase in the additions of natural gas-powered electricity generators. These natural gas-fired power plants are newer, have similar and sometimes lower fuel costs, and are more efficient at generating electricity than existing coal-fired generators.

They can also come online at full power in one to 12 hours, while a coal-fired generator can take up to 24 hours to be fully ready to produce electricity. Because of this necessary lead time, it is difficult to rely on coal-fired generators when demand increases and the power grid needs more power quickly.

For example, the electrical system experiences the greatest demand for power generation between 7:00 a.m. and 11:00 p.m. on weekdays. If demand increases, a coal-fired generator will miss the window when electricity is needed. Natural gas generators can meet demand much faster, which often makes them more cost effective for utilities.

2. The rise of renewable energies

Solar and wind power are now competitive with fossil fuel generators, mainly due to advances in technology.

Many states and the federal government also offer incentives for renewable energy generation, which lowers the cost of installing them. President Joe Biden’s climate plan aims to increase those incentives. And, once built, renewable energy sources have no fuel costs and relatively low operating costs compared to coal-fired generators.

A record 17.1 gigawatts of wind capacity came online in the United States in 2021 after a tax incentive was extended, and 7.6 gigawatts are expected this year.

Solar power accounts for 46% of all new power generation capacity expected to join the grid in 2022, or about 21.5 gigawatts.

3. Environmental regulations

The government has instituted several environmental regulations over the past few decades aimed at reducing sulfur dioxide, nitrogen oxides, particulate matter, mercury, and other hazardous air pollutants emitted from the electric power sector.

These dangerous emissions are linked to health problems, including respiratory diseases and neurological and developmental damage, as well as smog, acid rain and climate change. According to the US Government Accountability Office, coal-fired generators are by far the largest sources of electricity in the industry.

To comply with regulations, coal-fired power plant operators have installed scrubbers to remove pollutants from their emissions, replaced coal types with low-sulphur coal, and invested in other methods to reduce sulfur. and other impurities. As a result, costs have increased for the coal fleet.

These higher environmental mitigation costs, coupled with falling wholesale electricity prices in recent years, have meant that coal-fired plant operators have had a harder time recouping the cost of capital investments to maintain their old coal-fired generators. Instead, many chose to retire these units.

The Future of Coal Power: More Early Retirement

So what does this mean for the future of coal power in the United States?

The U.S. Energy Information Administration reports that coal-fired generators account for 85% of power generation capacity retired this year nationwide.

This trend is expected to continue, with significant production shutdowns of coal-fired generators by 2030. This results from both market factors (cheap natural gas and affordable renewable energy) and regulatory measures.

Coal is used more widely in other countries, including China, and US coal companies have increased their exports in recent years. However, at the 2021 UN climate change conference, more than 40 countries pledged to move away from coal altogether, and another 20 – including the US – pledged to stop public funding for coal. the use of coal, unless it includes carbon capture technology.

The Biden administration, which has struggled to push its climate policies through a deeply divided Congress, appeared to have moved forward on a broad climate change-focused package in late July. A deal announced by Sen. Joe Manchin of West Virginia included support for renewable energy and electric vehicles. The administration has been evaluating new regulatory options that could further affect the cost of coal-fired power generation.

All of this adds up to a challenging economic environment for US coal power for the foreseeable future.

This article was updated on July 28, 2022, with an announced deal on Biden’s climate plan.

Rebecca J. Davis, Assistant Professor of Economics and Finance, Stephen F. Austin State University

This article is republished from The Conversation under a Creative Commons license. Read the original article.