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Don’t write off coal. We need it to ensure power grid reliability

June 7, 2022

The power generation mix that has underpinned grid reliability and affordable electricity is currently under threat — a “perfect storm” of market failure and regulatory overreach in place of sound energy policy.

Weather forecasters predict a long, hot summer for most of the United States, with significant implications for the nation’s electric power grids. For example, the North American Electric Reliability Corporation (NERC), the regulatory authority that oversees grid operations in the U.S. and Canada, recently warned that the entire West and many areas of the Midwest face an “elevated risk” of insufficient electricity supply because of slim reserve margins. The potential shortfall is especially acute in Michigan, where the grid operator plans controlled outages this summer. For the Gulf Coast, NERC deems the risk of insufficient operating reserves to be “high” during peak demand conditions.

How did we get here? In part, looming power shortages can be attributed to a robust domestic economy that rebounded quickly from the COVID-19 induced recession. When production and consumption increase, the demand for electricity grows in tandem. But the main culprit is the “energy transition,” with its emphasis on weaning the power grid off fossil fuels. According to NERC, the premature retirements of baseload generating units, such as coal and nuclear plants, combined with the intermittency of wind and solar as power sources, have seriously impaired grid resiliency and reliability. 

In fact, NERC warned as early as 2018 that “an accelerated retirement of coal-fired and nuclear plants could lead to power outages, temporary shortfalls in surplus generation, and transmission problems.”  

To make matters worse, the energy-transition has been disrupted by supply-chain problems, inflation, and a federal investigation alleging China’s solar-panel manufacturers are circumventing tariffs. Combined, these factors are slowing the build-out of renewables and new investment in large-scale battery storage.     

Since 2007, electricity output from the nation’s fleet of coal plants has fallen by more than 50 percent, displaced mainly by renewables, and now accounts for only 22 percent of utility-scale generation. Forty gigawatts (GWs) of installed coal capacity have been shuttered in recent years, and another 27 GWs are scheduled to go offline by 2025. Greater use of natural gas for power generation, coupled with federal and state subsidies and mandates for renewable energy, has further hastened the demise of coal plants.

Unlike wind turbines and solar panels, coal plants are always on, regardless of the time of day or weather conditions. Coal plants keep months of fuel on site, providing additional security and resiliency to the grid. What’s more, natural gas-fired generation, which supplies about 40 percent of the electrons to the nation’s power grids, has become much more expensive. In recent months, the spot price for natural gas has nearly doubled, while the cost of thermal coal has increased only modestly.

Market failures in pricing bulk power, combined with the Environmental Protection Administration’s (EPA) agenda to accelerate coal plant closures, has put our electric power grids — and our economy — at risk. What’s more, the coal fleet is being pushed aside much faster than reliable alternatives can be incorporated into transmission networks.

Eliminating policies that cause market distortions, such as the huge subsidies to wind and solar projects, would be one way to sustain base-load power generation. But because renewables have strong political support, those subsidies are likely to remain in place. Instead, to keep baseload power in the mix, and to encourage investment in new generation, we need a pricing system that recognizes the value of coal and nuclear facilities in providing grid security and an adequate reserve margin. 

To keep our power grids agile and reliable, nuclear, coal, natural gas, solar, wind and hydro all will be required. Unfortunately, the generation mix that has underpinned grid reliability and affordable electricity is currently under threat — a “perfect storm” of market failure and regulatory overreach in place of sound energy policy.

First published at The Hill.

Article Tags
Energy
Author
Bernard L. Weinstein is Associate Director of the Maguire Energy Institute and an Adjunct Professor of Business Economics in the Cox School of Business at Southern Methodist University in Dallas.
bweinstein@cox.smu.edu