Power Reset – Optimizing the Existing Coal Fleet
By Janet Gellici, National Coal Council
The nation’s abundant, affordable and diverse domestic energy resources underpin economic prosperity. The existing coal power plant fleet is a critical component of the nation’s energy portfolio, providing a foundation of reliable and resilient electricity in today’s dynamic and rapidly evolving energy system.
The historic stability of the nation’s energy system is, however, subject to disruptions arising from market distortions, extensive regulation and regulatory uncertainty, which can increase the cost of electricity, threaten the reliability and resilience of the electric grid and hamper economic growth. These factors have most significantly and disproportionately impacted the nation’s coal plants. As
of September 2018, nearly 120,000 megawatts (MW) of coal generating capacity has retired or announced plans to retire. This represents nearly 40 percent of the 2010 U.S. coal fleet.
In its most recent report for U.S. Secretary of Energy Rick Perry, the National Coal Council (NCC) notes that it’s time for the U.S. to hit the “Power Reset” button to assess, support, reform and renew the role of the existing coal fleet in the U.S. power sector.
Coal’s Unique Role in the U.S. Energy Portfolio
The U.S. power system benefits from an electric grid that is not only reliable, but resilient. A reliable electric system minimizes the likelihood of disruptive electricity outages; a resilient system is designed with the understanding that outages will occur, is prepared to deal with them, is able to restore service quickly and to draw lessons from the experience to improve future performance.
Reliability and Resilience Attributes
Source: PA Consulting
Coal power plants excel in many attributes that support a reliable and resilient power grid. Their ability to store fuel on site and keep generation online is invaluable, especially during regional storms or other disturbances. It is also valuable in supporting rapid recovery following power outages. Over the last five years, the average subbituminous and bituminous coal plants had stockpiles of 75 days and 81 days of burn, respectively.
Average Days of Stockpiled Coal Burn
Resource availability acknowledges the value associated with abundant fuel sources that are widely accessible. Coal is used to generate electricity in 48 states; it provides at least half the electricity in 13 states and at least one- quarter of the electricity in 24 states.
Coal is mined in 25 states and can be shipped via a variety of transportation modes, including rail, truck and barge. Diversity in transportation methods makes coal supply less vulnerable to single points of disruption. Coal’s price stability is evident in that it has maintained steady pricing over time and can be secured on a guaranteed basis.
Dispatchability, a key component of a reliable and resilient power system, is provided by baseload plants that can be scheduled in advance to meet predicted load and adjusted to increase or decrease output as required. Unlike dispatchable plants, wind and solar generation are intermittent renewable energy (IREs) sources and require backstop dispatchable generation in order to reliably maintain grid supply- demand balances.
Resource diversity is critical to maintain a reliable and resilient grid, especially in the event of high impact- low frequency (HILF) events. Diversity helps maintain system reliability and the resiliency required to recover from HILF events. Maintaining a diversified, dispatchable energy portfolio allows the U.S. to maintain low electricity rates. The average U.S. residential consumer pays about one-half of the rate for the EU-28 countries, while the U.S. commercial and industrial rate is about 30 percent less than that of the EU-28.
Source: Eurostat Electricity Price Statistics & EIA Electric Power Monthly
The U.S. Coal Fleet Today and Tomorrow
Coal power plant retirements since 2000 have been driven by numerous factors, including competitive pricing from other fuel resources, federal and state energy and environmental policies, declining electricity demand, inadequate funding for technology innovation and societal pressures.
The U.S. power fleet is undergoing rapid changes, making it challenging to forecast the outlook for power generation. Substantial year-over-year differences in projected future coal plant retirements are one indication of the uncertainty of these predictions. Reliability projections tend to underestimate the cumulative impact of current operating conditions on coal plants. For example, load cycling may result in sharp increases in electric generation costs, much larger than anticipated in current economic projections. A rapid decline in baseload and dispatchable power could also severely reduce power supply reliability unless the overall system can be structured to absorb these changes, especially during extreme weather conditions.
Several sources have estimated the future generation mix; the range of predictions is broad. From 65 to 100 GW of coal-based power is predicted to retire by 2030. Without appropriate mechanisms that value the diversity, reliability and resiliency provided by the existing coal fleet, the downside capacity predictions are much more likely than flat line projections.
Coal Generation Retirements Projected through 2030
Source Emissions Strategies, Inc.
Policy Measures to Optimize Diversity and Resilience
Opportunities exist to implement regulatory and legislative measures to enable the U.S. existing coal fleet to operate more efficiently and effectively.
In an earlier report, the NCC noted that “uncertainties created by New Source Review (NSR) rules, their enforcement by EPA, and the prohibitive cost of administering NSR compliance have created strong disincentives to the widespread deployment of efficiency improvements.” Recent regulatory initiatives at EPA and legislative proposals in Congress have the potential to eliminate regulatory uncertainty and reduce litigation risks for utilities to implement energy
efficiency measures at their coal plants.
Various tax credits have been proposed or passed that could also provide support for the existing U.S. coal fleet. These include provisions for an Operations and Maintenance Tax Credit, reforms to the 48A Investment Tax Credit, and synergistic policies to enhance implementation of the recently passed 45Q tax credit revision, such as reforms to enhance eligibility for Private Activity Bonds (PABs) and Master Limited Partnerships (MLPs).
Land use policies supporting storage of CO2 in saline formations and oil and gas reservoirs could potentially benefit coal facilities. Reform of the Public Utility Regulatory Policies Act of 1978 (PURPA) would more realistically reflect today’s electricity landscape and ensure utilities are not forced to purchase power they do not need. Additionally, reforms to new rules for Coal Combustion Residuals (CCRs) and Effluent Limitation Guidelines (ELGs) would allow for the development of cost-effective means to manage coal ash facilities and wastewater discharge without forcing the premature retirement of existing coal plants.
Wholesale Electricity Market Reforms to Optimize Diversity and Resilience
The nation’s seven independent system operators (ISOs) and regional transmission organizations (RTOs) were designed primarily to maintain competitive markets, low electricity prices and transmission reliability. They were not designed to ensure resilience, fuel diversity or fuel security. Some 164,000 MW of coal-based generation – almost two-thirds of the fleet – are located in ISO/RTO footprints. As a consequence, ISO/RTO market policies affect the competitiveness and economic viability of the coal fleet.
Approximately 45,000 MW of coal generating capacity in ISO/RTO regions have retired. An additional 17,000 MW in these regions are slated to retire between 2018 and 2020, of which 12,000 MW have been attributed to market conditions.
Various out-of-market subsidies and mandates can put dispatchable sources, such as coal, at a competitive disadvantage. For example, wind and solar benefit from a Federal Production Tax Credit (PTC) which, in the case of wind, allows this resource to bid into markets at a zero or negative cost that suppresses prices for other electricity resources and increases the need for load following and ramping from coal units. At the state level, within PJM’s 13-state footprint, four states –northern Illinois, Pennsylvania, New Jersey and Ohio – have adopted or considered zero-emissions credit policies to subsidize existing nuclear plants. Subsidies allow renewable and nuclear generators to enter capacity auctions at prices below their operating costs, pushing down overall market prices and sometimes leading to power plant retirements.
In addition to tax benefits, 29 states have renewable portfolio standards (RPS) requiring that specific percentages of electricity sales come from renewables. These percentages range from 10 percent in Wisconsin to 100 percent in Hawaii.
There are many actions the Federal Energy Regulatory Commission (FERC) could take to ensure that the services provided by the U.S. fleet of coal-based power plants are appropriately valued. These include price formation reform, just and reasonable compensation for Essential Reliability Services (ERS), capacity market reforms, implementation of a forward resiliency market and demand response compensation reform.
Technology Options to Optimize Diversity and Resilience
Maintaining the U.S. coal fleet is essential to ensure that the country can continue to provide reliable, resilient, affordable power through a diverse electric mix. New technologies, such as high efficiency, low emissions (HELE) plants, offer dramatically improved efficiency and lower CO2 emissions versus subcritical coal plants. For existing plants, regulatory uncertainties, especially around NSR, have limited the ability of owners to aggressively pursue energy efficiency improvement opportunities.
Coal Power Plant Efficiency Audit Results
Source: National Energy Technology Laboratory
With the rapid increase in IRE generation, there is significant pressure on existing dispatchable coal resources to meet load and balance intermittency. U.S. electricity system well into the future. The NCC advocates a four-step approach:
ASSESS the value of the coal fleet. Steps must be taken to ensure that the reliable and resilient attributes of U.S. coal generation are acknowledged and that the nation’s existing coal fleet is equitably compensated for services it provides. Firm, dispatchable power must remain a sustained part of the nation’s fuel mix; targeted minimum levels for key fuel sources should be strongly considered.
SUPPORT efforts to retain continued operation of the existing coal fleet.
REFORM the regulatory environment.
The efficiency, environmental performance and cost-competitiveness of the existing U.S. coal fleet can be `enhanced with reforms to various regulatory mandates. Environmentally permitted investments should be afforded the opportunity to recoup value over their useful life and enable the power grid to take full advantage of existing resources. Just compensation is warranted should that opportunity be denied.
RENEW investment in coal generation.
Optimizing existing coal fleet assets requires a targeted Research Development, Demonstration & Deployment (RDD&D) program focused on increasing the efficiency, flexibility and competitiveness of the fleet. Public funding and support mechanisms, complemented by public-private partnerships will ensure grid reliability, dispatch effectiveness and power system resilience.
Janet Gellici is CEO of the National Coal Council.