TODAY’S STUDY: Using Existing Coal Costs More Than Buying New Energy
The Coal Cost Crossover: Economic Viability Of Existing Coal Compared To New Local Wind And Solar Resources
Eric Gimon And Mike O’boyle, Christopher T.M. Clack, Sarah McKee, March 2019 (Energy Innovation And Vibrant Clean Energy)
America has officially entered the “coal cost crossover” – where existing coal is increasingly more expensive than cleaner alternatives. Today, local wind and solar could replace approximately 74 percent of the U.S. coal fleet at an immediate savings to customers. By 2025, this number grows to 86 percent of the coal fleet.
This analysis complements existing research2 into the costs of clean energy undercutting coal costs, by focusing on which coal plants could be replaced locally (within 35 miles of the existing coal plant) at a saving.
It suggests local decision-makers should consider plans for a smooth shut-down of these old plants— assessing their options for reliable replacement of that electricity3 , as well as financial options for communities dependent on those plants4 .
Ultimately, this report begins a longer conversation about the most cost-effective replacement for coal, which may include combinations of local or remote wind, solar, transmission, storage, and demand response.
Introduction & Results
Coal generation is at a crossroads in the United States, or more precisely at a “cost crossover.” Due to the rapid recent cost decline of wind and solar,5 the combined fuel, maintenance, and other going-forward costs of coal-fired power from many existing coal plants is now more expensive than the all-in costs of new wind or solar projects. This cost crossover raises substantial questions for regulators and utilities as to why these coal plants should keep running instead of new renewable power plants.
To determine which coal plants are facing this cost crossover with renewables, Energy Innovation partnered with Vibrant Clean Energy (VCE) to compile a dataset of coal, wind, and solar costs.6 For simplicity, the modeling compares each coal plant’s marginal cost of energy (MCOE) to the lowest levelized cost of energy (LCOE) for wind or solar resource localized around that coal plant. Restricting replacement to local resources makes this analysis conservative, considering most coal, wind, and solar all travel from more remote locations to load centers via transmission.
Our research finds that in 2018, 211 gigawatts (GW) of existing (end of 2017) U.S. coal capacity, or 74 percent of the national fleet, was at risk from local wind or solar that could provide the same amount of electricity more cheaply. By 2025, at-risk coal increases to 246 GW – nearly the entire U.S. fleet.7
Furthermore in 2018, 94 GW of existing U.S. coal capacity was deemed substantially at risk from new local wind and solar that could undercut ongoing costs of existing coal by at least 25 percent. By 2025, substantially at risk coal increases to 140 GW – almost half the U.S. fleet – even as federal renewable energy tax credits phase out. Given uncertainties in publicly available coal cost data, the tier of coal plants “substantially at risk” could, with high confidence, be replaced with renewable energy at an immediate cost savings. State-by-state data detailing these findings are available as a companion to this report.
The VCE dataset reveals the going-forward costs for the vast majority of coal plants fall between $33 – 111 / megawatt-hours (MWh). Costs in 2018 for solar are more tightly clustered, between $28 – 52 / MWh, while wind costs vary more widely based on locational resource quality, falling between $13 – 88 / MWh, with a high number of very costly outliers in windless regions.
The crossover between new renewable and coal running costs is just one important part of shutting down existing coal plants – replacing coal plants with new wind and solar energy is much more complex in practice. The purpose of this report is to act as a conversation primer for stakeholders and policymakers where the math points to cheaper options that could replace coal plants at a savings to customers. Any decision on how to proceed will require further modeling of grid impacts and alternative sources of reliability services, as well as the possibility for even cheaper renewable replacements further away than the 35-mile maximum radius considered in this report.8
Regardless, any coal plant failing the cost crossover test should be a wake-up call for policymakers and local stakeholders that an opportunity for productive change exists in the immediate vicinity of that plant.
Building local renewables in the immediate vicinity of coal plants implies wind and solar could replace local jobs, expand the tax base, reuse existing transmission, and locate in the same utility service territory. But these constraints are quite restrictive. Utility planners, regulators, and customers could save additional money by looking further afield. For example, Colorado plans to replace its coal fleet with strategically located wind and solar resources around the state.9 The VCE WIS:dom model and others can accurately analyze the viability of transitioning from dispatchable power sources like coal to variable resources like wind and solar.
The unpaid capital balance owed to investors in coal plants falls outside a coal plant’s MCOE. Though this balance should not factor into the economic viability of the plant (after all, it’s easier to repay debt if utilities are meeting current obligations more cheaply), potential stranded asset value of at-risk coal plants reaches into the tens of billions. A recent series of America’s Power Plan policy briefs10 highlight different financial tools policymakers can consider to retire uneconomic coal-fired generation while balancing consumer, community, and investor concerns…
Coal To Renewables Cost Crossover
In order to compare the costs of building new renewables with the ongoing costs of running coal plants, this report combines the two datasets above to present simplified cost crossover math. Examining each coal-fired power plant in the dataset, VCE determined how nearby wind and solar could be used to replace that coal plant. To determine the risk profile of the coal generation to wind and solar replacement, we compared the MCOE of the coal-fired power plant with the LCOE of the total wind or solar output required to replace all the coal megawatt hours (VCE looked only at either all wind or all solar replacement).
The VCE algorithm logic is explained in Appendix C. In short, it replaces all the MWhs generated from each coal plant annually using local wind or local solar in a search pattern for sites that are available for deployment13 steadily increasing in distance. The maximum distance the algorithm required to identify replacement wind or solar resources for any given power plant was 35 miles, with a resulting average of 16 miles; these are very local replacements on the scale of the national maps being presented with this report. Sites deemed unsuitable for development by the VCE site screening algorithm were excluded from the assessment. The algorithm did not look further afield for cheaper combinations of distant resources and transmission. Its output is strictly the LCOE of local wind or solar required to replace each coal plant, transformed into a percentage difference between the MCOE of the existing coal generation and new local wind and solar.
Any plant with a negative percentage difference for solar or wind replacement was deemed at risk, and “substantially at risk” if the differential was less than -25% with local resources.
The quantity of energy replacement is only compared in terms of annual generation and doesn’t capture the time-based value of energy and grid services from a dispatchable (if not always so flexible) coal plant. Further useful analysis could compare a coal plant with a “virtual power plant,” combining wind, solar, storage and demand-side resources to more closely mimic or improve on the dispatch of the coal plant and reliability services.
But, as mentioned above, while the VCE analysis includes the cost of interconnecting new local wind and solar, the search algorithm does not look further afield for even cheaper resources once it has replaced the required MWhs. In Colorado, for example, no coal plant is at risk from local wind in this analysis, but we know that wind in the eastern part of the state easily competes with coal and is accessible via in-state transmission. In light of these factors, cost crossover would likely be more common if transmission expansion were taken into account…
Coal is a dirty and expensive way to generate electricity. The National Academies estimated that in 2005, U.S. coal generation alone caused at least $62 billion in non-climate related damages.25 Coal’s remaining rationale was that it was cheap if externalities weren’t included, but even that rationale is vanishing. Our report shows that coal is increasingly uneconomic against new local wind and solar resources.
The next refuge for those with an economic stake in coal generation is reliability, or claims that the grid cannot run reliably without it. This report cannot directly address that contention, but more holistic studies like the VCE Colorado or Minnesota studies26 or the NREL27 renewable integration studies do undercut this point.
Other resources will be required to complement wind and solar and provide essential reliability services, but the increasingly attractive relative value proposition for the raw energy available from wind and solar versus more expensive coal generation can generate more and more money to directly address grid challenges. Steep declines in costs for resources like battery storage will stretch that money even more. Furthermore, it is becoming clear that wind and solar can become an asset rather than a liability when it comes to essential reliability services due to their highly responsive power electronics.28
Large majorities of Americans support increasing the use of solar and wind energy in their states 29. The data in this report provide an economic rationale for a coal phase-out in the next decade led by wind and solar, happening a lot quicker than most had imagined. It’s time to get on with the coal-to-clean transition…