This article was written by Jeff St.John and originally published in Canary Media on January 31, 2023.
Years of analysis have made it clear that replacing most of the coal plants in the United States with a mix of solar panels, wind turbines and lithium-ion batteries can save billions of dollars and prevent air pollution while fighting climate change.
Now, with Inflation Reduction Act tax credits and federal financing on the table, the coal-to-clean transition is not just more cost-effective than ever before — it can also be accomplished by building clean energy close to retiring coal plants.
So says the latest Coal Cost Crossover report from think tank Energy Innovation. The report finds that all but one of the country’s 210 coal plants could be shut down and replaced with clean energy and batteries at a net savings to energy consumers, up from 72 percent of coal plants as of Energy Innovation’s last such analysis in 2021.
What’s more, nearly all of the country’s coal plants — 205 of 210 — could cost-effectively be replaced by renewable energy built within about 30 miles of the existing plant, the report finds. That’s a result of the Inflation Reduction Act’s additional tax incentives for investments that help revitalize coal communities, as well as the law’s creation of a program to make low-interest loans to redevelop dirty energy sites to produce carbon-free energy, said Michelle Solomon, Energy Innovation policy analyst and report co-author.
Building clean-energy infrastructure at these sites around the country could be a boon for coal communities in terms of job creation and economic revitalization, she said. Replacing coal plants with local wind and solar would spur $589 billion in local capital investment, the report finds.
It could also be a way to use the plants’ existing power-grid connections to get that clean energy onto the grid quickly, said Eric Gimon, a technical and policy consultant to Energy Innovation.
“For developers desperate to find ways to site their renewables, this could be a valuable way to get their interconnection capacity,” he said. Clean-energy developers have seen projects stalled and costs rise due to a growing bottleneck in grid-interconnection capacity over the past five years, a dynamic that threatens to stymie the growth of wind and solar power despite their increasingly favorable economics.
Additionally, Solomon said, “We found that the savings from renewables have gotten to be so much that you can pay for a significant amount of battery storage” with the money saved by closing coal plants early. These batteries could help ensure there’s enough power capacity at times of peak demand, a service that some coal plants now provide, allaying the concerns of utilities and grid operators that retiring the plants could reduce grid stability and reliability, she said.
The report found that replacing most of the country’s coal-fired power with cheaper, locally built solar power could save enough money to fund the deployment of 137 gigawatts of lithium-ion batteries with four hours of storage capacity.
That’s enough stored energy to provide 80 percent of the capacity value of one-third of the country’s coal plants, and 50 percent of the capacity of two-thirds of the country’s coal fleet, she said — “and that’s using really conservative numbers for the battery storage costs, given the uncertainty in battery prices.”
From analysis to execution: The barriers to replacing coal with clean energy
Will these findings help utilities, grid operators and regulators speed up the switchover from coal to clean power? That remains an open question, Gimon said. That’s because the economic factors studied by Energy Innovation don’t capture the full spectrum of reasons why utilities keep money-losing coal plants running instead of pursuing cleaner alternatives.
Coal’s share of the U.S. electricity-generation mix has fallen from about 40 percent in 2014 to about 22 percent in 2021, undercut by cheap fossil gas and, more recently, by even cheaper renewable energy. But many U.S. utilities still plan to keep some coal plants operating for decades to come, despite multiple analyses that indicate the need to end coal use by 2030 to meet the Biden administration’s goal of halving U.S. carbon emissions by that time.
One big reason utilities may not want to close plants early is that “they might not get full recovery on the asset,” Gimon said. Many utilities in the U.S. and around the world are operating coal plants that haven’t yet earned back the cost to build them.
Utilities that operate in states with vertically integrated energy markets, which include much of the Southeast, West and Midwest, pass those costs on to customers via charges on their monthly bills. Even if the power the coal plants produce is more expensive than alternatives, these utilities have an incentive to keep them open until those costs are paid off.
These dynamics have led many utilities to keep running money-losing coal plants to avoid those plants becoming “stranded assets” whose costs cannot be recovered from customers. A recent analysis by decarbonization think tank RMI found that from 2012 to 2020, U.S. utilities stuck their customers with an estimated $14.3 billion in excess costs by running coal plants at times when their power was more expensive than less-polluting sources of electricity. Most of these extra costs came from utilities whose rates are regulated by public utility commissions. (Canary Media is an independent affiliate of RMI.)
There are tools that state lawmakers and regulators can provide utilities to enable them to escape this trap. Securitization — a tool utilities can use to refinance the remaining unpaid costs of coal plants at rates that reduce the burden on customers — is one such approach.
Securitization can be paired with requirements to reinvest the money saved in new clean-energy resources and in communities harmed by the loss of jobs and tax revenue that accompanies coal-plant closures. The Section 1706 loan program created by the Inflation Reduction Act could offer a nationwide structure to finance replacing coal plants with new clean energy resources.
But these securitization efforts have been slow to move forward, given the complexities of aligning the interests of utilities, regulators, independent power project developers, clean-energy advocates and coal-community representatives.
The power of putting clean energy where coal plants are
Though it’s possible to use the existing grid infrastructure of shuttered coal plants to interconnect new clean energy, batteries and other lower-carbon options, the process will be complicated, according to Gimon. “We don’t know the implications yet, because we don’t know the rules for reusing an interconnection,” he said. “Nobody has studied this question much before.”
Even so, the benefits of siting clean energy and batteries alongside retired coal plants could help solve grid-reliability challenges that have prevented some utilities from closing coal plants, Solomon said — such as utility Ameren’s Rush Island coal plant in Missouri.
Ameren had sought to close the plant last year to avoid expensive pollution-control investments, but it was barred from doing so by Midwestern grid operator MISO due to concern that its closure could expose the regional grid to voltage instability. Energy Innovation’s analysis found that a combination of state-authorized securitization and support from the Inflation Reduction Act’s Section 1706 program could make battery storage a cost-effective replacement for local grid stabilization.
Some utilities are already moving to reuse coal plants’ existing grid interconnections for clean energy, Gimon noted. Nevada utility NV Energy plans to replace a coal plant with solar and batteries, for example. In January, PacifiCorp, which operates across the Pacific Northwest and Intermountain West, won federal approval for a plan to expedite the process by which generator owners could retire power plants and use the existing grid connection for new projects, despite concerns from independent power producers that this could give the utility an unfair advantage over competing projects.
It will be important for regulators to manage the process of replacing coal plants to ensure the most climate-friendly outcomes, Gimon warned. The Inflation Reduction Act’s clean energy incentives have already started to lead some utilities to rebalance their long-range investment plans in favor of more wind, solar and batteries and earlier coal-plant closures, for example. But some utilities are planning to replace coal plants with fossil-gas-fired generation, he noted. That could allow those utilities to build and rate-base new power plants and avoid third-party competition to replace them with cleaner alternatives. It would also fail to capture the low-cost and carbon-free benefits that Energy Innovation’s analysis indicates are within reach for the vast majority of the country’s fleet of coal-burning power plants.
All told, the new analysis highlights a clear opportunity for accelerating the coal closures at the pace needed to slash carbon emissions fast enough to combat the worst harms of climate change, Gimon said. But it’s also a clear warning to utilities and regulators that they “need to be more proactive about a lot of these coal plants going away.”
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