Coal Retirements Pose Potential Power Problems

Coal-fired power plants are shutting down in record numbers, and it’s unclear if the electric grid will weather the shift without reliability problems or substantial rises in energy costs for consumers.­

Faced with competition from cheap natural gas and a slew of environmental regulations that will make production more expensive, 16 percent of coal-powered plants are expected to retire by 2020, many of them as soon as next year, according to the Energy Information Administration. The vast majority of the plants slated to close are concentrated in the Midwest and mid-Atlantic, causing headaches for grid planners trying to make sure they have enough electricity on hand to meet high demand in winter and summer months.

The situation has become a constantly evolving challenge, as utilities and regulators try to figure out how to keep power flowing. On one hand, environmental advocates and natural gas proponents believe other resources will be able to step in and replace the coal plants. But the coal industry, as well as some regulators and vocal utilities, aren’t so sure. They say this winter’s extremely cold weather and strains on the electric system were an early warning sign that it will be difficult to meet power needs with fewer coal plants.

American Electric Power, one of the country’s biggest utilities, made headlines when it reported that it used 89 percent of the power it will retire in 2015 to meet electricity demand in January—a figure that surfaces repeatedly in the debate. AEP CEO Nicholas Akins told the Senate Energy committee last month that the retirements—and lacking incentives to build new plants to replace them—jeopardize grid reliability. “You’re building in inherent weaknesses into your system that already struggled to meet demand,” says Laura Sheehan, a spokeswoman for the American Coalition for Clean Coal Electricity, a group that represents the industries involved in producing electricity from coal.

So what does a utility do if it needs to replace lots of coal power? Around the country, the options are mostly the same: building new plants—usually ones that run on natural gas—adding more transmission to move power where it is needed, paying consumers to use less electricity when it is in high demand or buying power from neighbors. But all of those alternatives pose challenges.

The PJM Interconnection and the Midcontinent Independent System Operator, two of the biggest regional grid organizers, are facing the most retirements, according to an analysis presented in February by the Brattle Group. The two grid organizers have said the coal retirements complicate their planning process, but they expect to have enough power to meet demand next year.


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Still, PJM executive vice president Michael Kormos told the Senate Energy panel last month he is worried that PJM’s cushion of extra electricity capacity is shrinking. Kormos said as a system operator he is not comfortable with the situation, and he warned that constituents with variable rate plans will see “more volatile wholesale prices than they have in years past.”

PJM will lose 12,000 megawatts of coal power in 2015 and 2016 alone, and the region will increasingly rely on demand response, natural gas, renewable power and imports from neighbors. That shift could be difficult for the region for a number of reasons. PJM can only call users to curb their electricity use in an emergency when supply is already very low. This winter proved that relying on natural gas can become be extremely expensive during cold snaps. Renewable power sometimes requires transmission upgrades, and isn’t available at all hours of the day. And buying power from other regions can be very costly.

Grid operators try to plan for the worst-case scenarios, but another harsher-than-expected cold season could be devastating.  Officials at the Federal Electricity Regulatory Commission have been conducting a careful review after this winter, hearing from the power sector at a technical conference in the beginning of April.

“I think we’re hoping for the best, but that’s not a very prudent way to plan for the next three to four years,” said FERC Commissioner Philip Moeller in an interview. “We have to assume and plan for there being some more extreme weather events.” PJM was running “literally on the edge” several times this winter, Moeller said. He pointed out that PJM’s neighbor, MISO, expects to have enough power next winter but is predicting a reserve margin deficit for the summer of 2016.

If there is not enough power, there could be rolling blackouts system-wide, depending on the weather, Moeller said.

New England is also in “crisis mode,” he said, because the region does not have enough infrastructure to support its reliance on natural gas and it is facing nuclear fossil fuel plant retirements that will be hard to replace because of their locations. “It gets down to specific load pockets,” said Moeller.

But John Moore, a Natural Resources Defense Council attorney who advocates through the Sustainable FERC project for deploying more clean energy resources, argues there are plenty of affordable and feasible options for replacing outgoing coal plants.

“We’ve seen in the past that markets, states, and the (regional transmission organizations) have always worked to meet new environmental standards without creating reliability risks,” Moore said.

RTOs and FERC are doing what they think is necessary to ensure reliability, he says. Moore says they are making changes based on lessons learned this winter about challenges to operating in severe temperatures, requiring plants to test and verify they are functioning properly during the cold winter months. Moore did say he believes more could be done to address natural gas price spikes in regions that rely heavily on the fuel.


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There are many market factors contributing to coal plant retirements. One major reason is that the Environmental Protection Agency is implementing and drafting a slate of regulations that will make coal power production more costly—especially compared with cheap natural gas. That means coal plants must decide whether to spend money on retrofitting to meet requirements or to close down.

Sometimes the economic calculations are clear, and coal plants know they wouldn’t be able to compete after making investments in upgrades. But most cases aren’t so cut and dry.

Andrew Melnykovich, a public affairs officer for the Kentucky Public Service Commission, said coal plant responses to market and regulatory pressures vary depending on the situation. Louisville Gas and Electric and Kentucky Utilities, for example, have at least one coal plant being replaced by a natural gas generator, and they also have chosen to retrofit a large chunk of their coal capacity. LG&E and KU have probably spent the most time in front of the Kentucky PSC hashing out which alternatives are most reliable and pose the lowest costs to consumers, Melnykovich said.

“It’s very case specific, and we’ve seen it go both ways” Melnykovich said. A new coal-fired facility might be less expensive to upgrade than one that is older or does not have space nearby to build a coal scrubber to reduce air pollution. The decision-making process on retirements is complicated, especially because it’s unclear how some regulations will turn out. The EPA won two court battles last month—upholding standards on mercury and other emissions and regulating cross-state air pollution. The industry is still awaiting rules on power plant water intakes, coal ash and carbon emissions for existing facilities.

It’s also not clear how much the carbon capture technologies that coal generators might have to use will cost. Southern Co. announced this week that it would delay starting up its $5.5 billion coal-gasification plant in Kemper County Mississippi because of cost overruns. The power industry has been looking to the facility as a test case for whether the advanced technology is feasible.

James Rubin, an attorney for Dentons, represented the natural gas and renewable power company Calpine in a suit defending the EPA’s cross-state pollution rule. He argues the EPA is taking advantage of an economic reality—that coal is no longer competitive with natural gas—rather than driving economics.

“EPA is not trying to shut down the power industry or cause price increases,” Rubin said. “They’re looking at modeling and determining that more capacity will come online and take up the slack.”

Coal plants won’t disappear entirely anytime soon. EIA predicts coal will continue to dominate the country’s generation mix through 2034, when it is expected to be overtaken by natural gas. But for years to come, utilities and power grid planners will have to keep toying with changes to keep the lights on.

Morning Consult