The Secret To Successfully Closing Down Coal Plants
Close down coal-fired power stations. Do not replace them with gas-fired electricity. That would reduce greenhouse gas emissions in the USA by 15 percent. That’s a big number. Those plants are old and will close eventually. So why not sooner rather than later? The answer, of course, is money. We figure that investor-owned utilities and public power agencies have, between them, close to $70 billion worth of coal-fired generators still on their books (in rate base). Those utilities will not give up those money-earning assets without compensation. They stalled the Obama clean air program in order to keep those assets operating. They didn’t have to do anything during the Trump years to keep pumping out those greenhouse gases.
If Biden wins, we can expect the plant owners to employ dogged delaying tactics in a federal court system stacked in favor of business interests to keep the plants running. And herein lies the problem. By delaying what appears inevitable – that coal in the U.S. is finished as a power generation boiler fuel – the utility industry continues to miss a step. So policy makers may have to decide whether they want endless delay or figure out how to buy out the utilities in the most cost effective manner.
But first, how did the industry get into this unenviable position of having so much money tied up in facilities whose future is so uncertain?
The U.S. electric utility industry made two mistakes. First, it did not accept the inevitable decline in coal fired power generation and, second, it did not at the same time pivot to natural gas as a “cleaner” transition fuel to a renewable future. Had the utility industry taken the lead on this issue, say early in the Obama administration, some of the unpleasantness could have been avoided. (We are thinking specifically about the Atlantic gas pipeline cancelled this week.) Coal plants could have been shuttered expeditiously while gas was hailed as a better —though still fossil— transition fuel. Most importantly we could have had a political and regulatory acceptance of gas-as-transition fuel at that time. Now that window appears to have closed.
The electricity business suffers from a fundamental divide between business owners and customers. Utility customers by definition all want the same thing: safe, reliable and affordable energy. Recently consumers have added another criterion that may be phrased as a request: “Please produce this electricity in a manner that won’t contribute to an increasingly hostile environment.”
And in this we see a split in the electric utility industry. The monopoly wing of the industry, with its inherent disdain for customers, produces electricity on a “take it or leave it” basis. That is, if you don’t like the “dirty” electricity we produce that’s fine. Sit in a dark, hot place with no running water or refrigeration.
Customer focused utilities take the opposite approach. They view themselves as energy providers with a broad spectrum of solutions at various price points. It is the opposite of the legacy utility, top down, command and control approach.
Several decades ago, electric utilities in the U.S. and Europe had pretty much the same mix of assets with only the percentages differing. Then the Europeans began to take climate issues more seriously and saw a business in it. Now customer centric utilities, even in the USDA, are shedding legacy fossil assets at a faster rate in response to their customers’ preferences. This trend could reduce the risk of asset write offs related to fossil fired power generation.