In 2018, natural gas surpassed coal to become the largest source of electricity generation in the United States. And during the past four months, admittedly a period of reduced power demand because of the COVID-19 pandemic, renewable energy sources such as wind and solar actually have pushed more electrons into the nation’s power grid than have coal plants. Since 2007, the electrical output from the nation’s coal fleet has fallen by more than half, while the utilization rate of operational facilities has fallen to 48 percent from 67 percent a decade ago.
These developments can be attributed to the “triple whammy” that has afflicted coal-fired power plants in recent years. Tough environmental regulations have militated against the construction of new facilities and induced early retirements of existing plants. Since 2015, 40 gigawatts (GWs) of installed capacity have been shuttered, with another 27 GWs slated to go offline by 2025. Cheap natural gas, along with federal and state subsidies and mandates for renewable energy, also hastened the closure of coal-fired power generation.
Even so, coal still accounts for 24 percent of America’s electricity. What is more, coal plants — along with nuclear and large natural gas facilities — constitute “base-load” power that is critical for maintaining grid stability and reliability. Unlike intermittent wind and solar, coal plants are “always on.” And unlike natural gas plants, they keep months of fuel on site, providing essential security and resiliency for a grid increasingly dependent on just-in-time fuel delivery. However, with more than half the states having partially or totally deregulated their power markets, often no mechanism exists to ensure the economic viability of base-load generation that must compete with cheap natural gas and subsidized renewables.
Similarly, extremely cold weather, such as the 2014 “polar vortex” and the 2018 “bomb cyclone,” has strained power grids in the Northeast and Midwest. In response, PJM, the nation’s largest regional transmission operator providing electricity to 65 million people in 13 Mideastern and Midwestern states, has adopted a price floor in its wholesale power market that recognizes the importance of coal and nuclear plants in assuring grid resiliency and reliability. Though a capacity charge or price floor has been debated in Texas, the state remains an “energy only” market and its power grid continues to be at risk should the summer of 2020 be a repeat of last year.
Time is running out to adopt policies that will keep base-load power sources on the grid. We have taken for granted the balance, fuel security and reliability offered by a power mix built upon a foundation of base-load generation. What is needed to ensure that essential capacity stays in the marketplace is a pricing system that puts a premium on fuel security and grid reliability. As stated by Neil Chatterjee, chairman of the Federal Energy Regulatory Commission (FERC), “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.”
Bernard L. Weinstein is associate director of the Maguire Energy Institute and adjunct professor of business economics in the Cox School of Business at Southern Methodist University.