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Research & Commentary: Study Details the Public Policy Decisions Hurting Coal, Raising Electricity Prices for Consumers

May 7, 2018

State And Federal Policies Distort Wholesale Power Markets At Expense Of Coal

A new Policy Study authored by Isaac Orr, a policy fellow at the Center of the American Experiment and a former Heartland research fellow for energy policy, and Frederick D. Palmer, The Heartland Institute’s senior fellow for energy and climate, notes electricity prices in the United States have risen by 36 percent since 2003, and that one of the main causes of this spike has been the premature closure of coal-fired power plants.

Orr and Palmer argue the premature shut down of these plants is caused in part by state and federal policies, such as renewable energy mandates (REMs), and subsidies to “renewable” sources of energy, which have distorted wholesale power markets and purposefully made electricity more expensive and more difficult for coal to remain a competitive segment of the country’s energy portfolio.

In “Public Policy and Coal-Fired Power Plants,” the third in a series of four policy papers by Orr and Palmer, the authors note the 36 percent price increase has come at a time when natural gas prices have fallen, coal prices have remained relatively stationary, and electricity demand has been “essentially flat.” Since 2010, at least 250 coal plants, providing more than 34,000 megawatts of electricity, have been taken offline. These plants could have produced electricity at much more affordable rate compared to newly constructed natural gas plants or solar and wind farms.

“As existing power plants are shut down before the end of their useful lives, they will be replaced with newer power plants that are inherently more expensive to build and operate because they must repay the debt used to finance their construction. These higher costs will be passed on to ratepayers: residential consumers, businesses, and manufacturers,” Orr and Palmer note.

Hurting the coal industry are the combined $11 billion in federal subsidies received by wind and solar energy each year. Respectively, these two renewables receive 52 times and 345 times mores subsidies than coal. In absolute terms, wind receives $35.33 per megawatt hour (MWh) produced and solar receives $231.21 per MWh. Coal receives just 57 cents per MWh. Without these subsidies, the wind and solar energy simply could not survive.

Renewable energy mandates, passed into law in 29 states, also distort the U.S. energy market, to the detriment of consumers and cheap, reliable energy sources like coal. More the half the growth in the wind and solar industries since 2000 is directly tied to REMs, which were originally passed “to encourage a minimum level of investment needed to bring renewable technologies up to scale and reduce their costs. Today, these mandates are increasingly being used to force an uneconomic transition to 50 percent or even 100 percent renewable electricity generation within 13 to 23 years, a timetable that cannot be met.” Further, “utilities paid $2.6 billion in 2014 to comply with REMs, averaging $12 per MWh, roughly 1.3 percent of average retail electricity bills. These costs will increase dramatically in the next decade as most state REMs are scheduled to reach their mandatory compliance deadlines between 2020 and 2030.”

These costly policies propping up renewables and damaging coal greatly harm low-income households, who spend a higher share of their income on electricity. More spent on electricity means less spent on other necessities like food and rent and less to save. Roughly 45 percent of Americans already live in “energy poverty,” meaning they spend more than 10 percent of their income on energy costs.

“Failing to act to preserve the existing coal-fired generation fleet will impact all U.S. citizens and enterprises, hurting families, businesses, and manufacturers,” Orr and Palmer conclude. “Low-income households are especially harmed because they pay the largest share of their income in energy bills. Businesses are harmed by increasing commercial electricity prices and the potential for power outages if the reliability of the grid is undermined. … The United States has among the lowest industrial electricity rates in the world, but this competitive advantage is threatened by policies that prioritize intermittent renewables over affordable baseload power.”

The following documents provide more information about premature coal plant closures.

Public Policy and Coal-Fired Power Plants
https://www.heartland.org/publications-resources/publications/public-policy-and-coal-fired-power-plants
In this Policy Study – the third in a series of four – Center of the American Experiment Policy Fellow Isaac Orr and Heartland Institute Senior Fellow Fred Palmer discuss how the premature retirement of coal-fired power plants will cost consumers billions of dollars in the form of higher electricity prices and regulatory compliance costs, subsidies for renewable generation technologies, construction of unneeded electricity generation capacity and transmission lines, and lost economic opportunities, especially in energy-intensive industries such as manufacturing. They also discuss how state renewable energy mandates and federal subsidies given to renewable energy sources, primarily wind and solar, distort wholesale power markets to the detriment of coal-fired power plants and the real-life impact these policies have on families, businesses, manufacturers, and coal mining communities.

How the Premature Retirement of Coal-Fired Power Plants Affects Energy Reliability, Affordability
https://www.heartland.org/publications-resources/publications/how-the-premature-retirement-of-coal-fired-power-plants-affects-energy-reliability-affordability
In this Policy Study – the first in a series of four – Center of the American Experiment Policy Fellow Isaac Orr and The Heartland Institute Senior Fellow Fred Palmer discuss Australia’s experience with policies that forced coal-fired power plants into premature retirement, making large parts of the country dependent on unreliable and high-priced renewable energy, particularly wind power. The study also examines the parallels between the United States and Australia and discuss problems faced by states that have aggressively promoted renewable energy, examines the importance of “prudence” and diversified energy portfolios, and evaluates a U.S. Department of Energy study that correctly identifies natural gas-fired power generators as a reason for coal plant retirements but fails to describe accurately the role played by renewable energy subsidies in those retirement decisions.

How Obama-Era Regulations Are Shutting Down Perfectly Good Power Plants
https://www.heartland.org/publications-resources/publications/how-obama-era-regulations-are-shutting-down-perfectly-good-power-plants
In this Policy Study – the second in a series of four – Center of the American Experiment Policy Fellow Isaac Orr and Heartland Institute Senior Fellow Fred Palmer offer a brief overview of the “war on coal” and the damage done by the Obama-era zombie regulations. They then discuss two of those regulations in more depth: the Clean Power Plan and the addition of carbon dioxide to New Source Performance Standards for new power plants. Orr and Palmer also explain why the Endangerment Finding should be rescinded and address seven “zombie” regulations unrelated to carbon dioxide that are adversely affecting coal-fired plants. Lastly, they describe how the Trump administration has begun the process of replacing Obama-era zombie regulations with policies based on real science and sound economics.

How to Prevent the Premature Retirement of Coal-Fired Power Plants
https://www.heartland.org/publications-resources/publications/how-to-prevent-the-premature-retirement-of-coal-fired-power-plants
In this Policy Study – the fourth in a series of four – Center of the American Experiment Policy Fellow Isaac Orr and Heartland Institute Senior Fellow Fred Palmer offer a brief history of electric utilities and describe how efforts to deregulate them in the 1990s led to more, not fewer, regulation. There is no “free market” in electricity today. They describe the four Obama-era zombie regulations on coal and the six subsidies and mandates favoring renewable energy (primarily wind and solar) that must be eliminated to restore a free market for energy.

Video: Tenth International Conference on Climate Change, Panel 10, ‘The Impact of Coal Restrictions on the Navajo Nation,’ Featuring Carlyle Begay
http://climateconferences.heartland.org/carlyle-begay-iccc10-panel-10/
State Sen. Carlyle Begay of Arizona presents “The Impact of Coal Restrictions on the Navajo Nation” at the Tenth International Conference on Climate Change in Washington, DC on July 12, 2015.

Video: America First Energy Conference, Panel 4A, ‘The Future of Coal,’ Featuring Heath Lovell
https://www.heartland.org/multimedia/videos/heath-lovell-afec-panel-4a-the-future-of-coal
Heath Lovell, vice president for public affairs at Alliance Coal, delivers a presentation titled “Where Does Coal Go from Here?” at the America First Energy Conference in Houston, Texas on November 9, 2017.

Video: America First Energy Conference, Panel 4A, ‘The Future of Coal,’ Featuring Fred Palmer
https://www.heartland.org/multimedia/videos/fred-palmer-afec-panel-4a-the-future-of-coal
Fred Palmer, senior fellow for energy and climate policy at The Heartland Institute, delivers a presentation titled “Coal Is Life” at the America First Energy Conference in Houston, Texas on November 9, 2017.

Podcast: Dr. Alan Moran: Australia, From Coal Power to Blackouts
https://www.heartland.org/multimedia/podcasts/dr-alan-moran-australia-from-coal-power-to-blackouts
In this edition of the Heartland Daily Podcast, Alan Moran of the Australian think tank Regulation Economics discusses how shuttering coal-fired power plants in Australia and attempting to replace them with wind has caused electricity prices to spike and has made the grid more vulnerable to blackouts. After a severe blackout plunged much of Australia into darkness, Elon Musk made headlines when he announced he would install a 100-megawatt battery system in Australia within 100 days, or the system would be free. Moran discusses the battery bet and more.

Podcast: Fred Palmer: Australia, a Cautionary Tale
https://www.heartland.org/multimedia/podcasts/fred-palmer-australia-a-cautionary-tale
Fred Palmer, senior fellow for energy and climate at The Heartland Institute, joins Jim Lakely, director of communications, to discuss his new paper Australia, A Cautionary Tale. Palmer co-wrote the paper with Heartland Research Fellow Isaac Orr. Palmer speaks about how Australia has caused electricity prices to rise by instituting a carbon tax and mandating a shift away from coal. In the summer of 2017, the City of Adelaide had a brownout because its renewable system failed to deliver enough energy to power its citizens’ needs.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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Author
Tim Benson joined The Heartland Institute in September 2015 as a policy analyst in the Government Relations Department.
TBenson@heartland.org