New campaign will ask coal users to face the 'cold hard economic case' against them
With 150 GW of U.S. coal set to remain in service after 2020, the Rocky Mountain Institute aims to prove the resource is raising electricity costs.
Bruce Nilles, who led the charge against coal that shuttered 275 of the 530 U.S. coal plants as director of the Sierra Club Beyond Coal Campaign from 2002 to 2018, will now lead a new effort against the resource. Nilles was named a Rocky Mountain Institute (RMI) Senior Fellow in August and awarded a $2 million grant to lead a new effort based on the economics of coal.
"By 2020, coal will be gone from most of the country and concentrated in a handful of states," Nilles told Utility Dive. "The way to make progress in the remaining states is to make the cold hard economic case to regulators and customers that the high cost of coal-generated electricity is not good for business."
"In many of the places where coal is still being used, a climate change argument will probably not be effective."
Senior fellow, Rocky Mountain Institute
Nilles' new objectives are to replace coal with lower-cost alternatives, and then get fossil fuels out of other economic sectors, such as transportation and building heating and cooling.
The biggest landmark in the economic case against coal were the bids in an Xcel Energy solicitation at $21/MWh for wind plus storage and $36/MWh for solar-plus-storage, Nilles said. Equally important was a June NV Energy filing for a 300 MW solar project at $23.76/MWh.
"In many of the places where coal is still being used, a climate change argument will probably not be effective," Nilles said. "It should be about the economic wisdom of continuing to run coal plants when there are such low-cost alternatives available."
Major coal-owning utilities, like the Tennessee Valley Authority (TVA), say they are evaluating the economics of their coal assets. But they say coal will come out of their resource mixes when their own data — which they insist is confidential — shows it is no longer the least-cost option.
Without access to the data to prove utilities wrong, Nilles will instead show that coal is driving up electricity rates in coal-reliant states and will call on consumer groups to verify the harm high rates are doing to state economies. Then, he will use strategies described in a September RMI paper to show there are financial approaches that could make closures a win-win-win for consumers, plant owners and the climate.
The Nilles Plan
Under Nilles' leadership, Sierra Club's Beyond Coal Campaign brought regulatory, legislative, and legal actions against coal plant owners and operators across the country. Since 2010, their work, in cooperation with many environmental and renewables advocates, led to the shuttering or scheduled shuttering of over 133 GW of coal capacity and its replacement with over 98 GW of clean energy.
There are still 255 coal plants in operation, the Campaign's website reports. In 2019 and 2020, Sierra Club expects more retirements and scheduled retirements, "leaving about 150 GW to deal with in a small number of states," Nilles said. "And it is important to replace [coal] with clean energy and not natural gas."
Some utilities, like TVA, are retiring coal plants fast because their load is down, Nilles said. "But, making the economic case to continue moving away from coal will be complicated where crucial economic data is withheld." The new effort may in many cases circumvent the "fight with utilities for greater transparency, because that issue will get more intense as coal gets more expensive."
"Our 2015 IRP shows wind and solar are far and away more expensive and cannot be base load generation until battery storage becomes more affordable."
TVA has demonstrated a reluctance to share granular data on the economics of its coal fleet, according to Stephen Smith, Executive Director of the Southern Alliance for Clean Energy (SACE). SACE has engaged with the utility over the coal in its resource mix through its last three integrated resource planning (IRP) processes.
Since 2011, the utility has shuttered 26 coal-fired units and now has 33 active units, according to its 2017 Securities and Exchange Commission filing. The goal is to reach a 7,891 MW coal capacity, a total reduction of 6,682 MW, the filing added.
The utility has shuttered all units it committed to close, though there is "a good chance other units are not economic," Smith told Utility Dive. But, without TVA data, that argument is difficult to prove, and "TVA has been reluctant to cooperate."
Nilles plans to make the argument another way.
Getting around the data
To replace the plants, TVA has added almost 1,900 MW of combined-cycle natural gas capacity and 1,100 MW of nuclear capacity, which totals significantly less than was shuttered because the utility's load is expected to plateau or decline over the next decade, TVA spokesperson Scott Brooks told Utility Dive.
TVA will invest around $8 billion in renewable energy over the next 20 years, "but our 2015 IRP shows wind and solar are far and away more expensive and cannot be base load generation until battery storage becomes more affordable" Brooks said. "If there is a way to show that the all-in cost of solar or other options would meet the least-cost standard, we would have to consider it."
The economic case hinges on granular data about TVA's system that Smith believes the utility will resist sharing.
But seven of TVA's nine Shawnee coal units and its Paradise three coal unit, all in Kentucky, are under consideration for closure, according to a September 10 TVA presentation. And Kentucky's auto industry is growing concerned about how coal is impacting the state's electricity rates, Nilles said.
Kentucky is the third biggest car and truck manufacturing state, with over 500 component-making facilities and over 100,000 direct employees, according to Kentucky Auto Industry Association Executive Director Dave Tatman. The sector provides the second biggest industrial share of the state's GDP and is "a huge consumer of electrical power."
"Electricity prices are increasing because of the increased pressure on coal plants and that is driving up automotive industry manufacturing costs," Tatman told Utility Dive.
The average Kentucky Power residential customer's monthly bill went from $74/month in 2004 to $155/month in 2016, according to U.S. Energy Information Administration information compiled by Inside Climate News.
"We would wholeheartedly endorse the use of natural gas, renewable energy, or any alternative to coal that would keep the Kentucky electricity price competitive with the price in states competing to attract the auto industry."
Executive director, Kentucky Auto Industry Association
The rising electricity price is a major concern for the industry because the increased costs are either passed on to consumers or are absorbed in car maker budgets, Tatman said. "It is also a major concern for the state."
Studies show Kentucky had "the lowest electricity rate of the 13 states competing for auto industry investment and that made it a key enabler of growth," he said. "We would wholeheartedly endorse the use of natural gas, renewable energy, or any alternative to coal that would keep the Kentucky electricity price competitive with the price in states competing to attract the auto industry."
Consumers have the same concerns in the traditional coal stronghold of West Virginia, Consumer Advocate Division Executive Director Jackie Roberts told Utility Dive.
Electricity providers are taking an increasingly higher proportion of low cost natural gas-generated electricity from the regional market, she said. "That reduces coal plant run times and raises operational costs, which leads to higher rates."
"Large industrial customers' representatives have one motivation — price."
Senior fellow, Rocky Mountain Institute
From 2010, West Virginia rates have risen faster than any other state in the region and went up 4.1% last year, Roberts said. This is creating "serious affordability issues," according to the Consumer Advocate's 2018 annual report.
Affordability issues are also impacting industrial customers, and "that is a big concern because they provide the jobs," Roberts said. "West Virginia is a low-income state, but its electricity rates are no longer competitive, and that is driving jobs out of the state and bringing fewer jobs into the state."
This is the point Nilles intends to make nationally. "Large industrial customers' representatives have one motivation — price," he said. "This is a big opportunity to make regulators and consumer advocates in states that are holding on to coal aware that closing existing plants and shifting to alternatives can lower rates."
The September paper on coal asset financing from RMI provides a set of strategies that have worked before in closure settlements and can work again, Nilles added. They offer coal plant owners ways to protect their financial interests while making the transition to alternatives, aligning the interests of parties that previously opposed the move.
Sierra Club continues to litigate a two-year pursuit of access to PacifiCorp data that would show the utility's Western coal plants are costing its ratepayers more than alternatives. "We plan to make this transition as fast and as smart as possible," PacifiCorp VP for Integrated Resource Planning (IRP) Rick Link told Utility Dive. "But we need to account for the costs and the risks and protect reliability."
RMI's just-released "Managing the Coal Capital Transition" paper describes ten financial approaches to resolving concerns like those of PacifiCorp, to "proactively" transition to more cost-competitive and emissions-free clean energy alternatives.
Utilities closing uneconomic coal assets must face the question of how to seek rate treatment, Sierra Club Senior Strategy and Technical Advisor Jeremy Fisher told Utility Dive.
"That may be difficult for PacifiCorp because it operates in six states. But if they present rational proposals, like accelerated depreciation or creating a regulatory asset, to stakeholders and regulators, they can get buy-in," Fisher said.
Considering depreciation is "standard financial practice" in coal unit closure decisions, TVA's Brooks agreed.
Some of the RMI paper's ten policy approaches impose losses on asset owners, like those that mandate closures or removing the plant from a utility's rate base. Other approaches protect asset owners over time by scheduling a phase out of incentives. Still others shift the entire loss to the state through a takeover or a government buy-out.
One of the most practical approaches so far put into practice was Xcel Energy Colorado's strategy for closing its Comanche plant, Jeff Waller, RMI Principal in Global Climate Finance and co-author of the paper, told Utility Dive.
"The Xcel proposal is a good model because it came from the utility, but there is no one-size-fits-all approach."
Principal in Global Climate Finance, Rocky Mountain Institute
Bids into Xcel's solicitation were significantly lower for renewables than the cost of operating Comanche, Waller said. The utility convinced Colorado regulators that a rider already on customer bills to fund renewables growth in the state could justifiably be used to pay for accelerated depreciation of the plant.
"The Xcel proposal is a good model because it came from the utility, but there is no one-size-fits-all approach," Waller said. "The paper describes tools that can address the question of how to finance an early coal plant closure."
The most important strategy in the RMI paper is the focus on accelerated depreciation, Nilles said. Utilities often extend the amortization of their coal plants to lower annual cost impacts, and that works against early retirement efforts. "Getting the depreciation accelerated has been front-and-center in moving closures forward in regulated states."
"This new effort will get the message out to electricity users, elected officials, regulators, utilities and other stakeholders that coal will make states that rely on it economically uncompetitive and impose costs on business and customers, and a transition to low cost renewables is the solution."
Senior fellow, Rocky Mountain Institute
A breakthrough settlement with independent power producer TransAlta on the Centralia coal plant hinged on managing a "several-hundred-million-dollar stranded investment," Nilles recalled. "The financial solution combined a short-term off-take contract for coal generation and state funding, so it kept the plant running a little longer but allowed the company to take a more limited loss to make the transition."
The U.S. is on track to be coal-free by 2035 if it maintains the post-2015 pace of retirements, Nilles said. "This new effort will get the message out to electricity users, elected officials, regulators, utilities and other stakeholders that coal will make states that rely on it economically uncompetitive and impose costs on business and customers, and a transition to low cost renewables is the solution. We think that will bring an end to coal."
Clarification: A previous version of this story indicated that 150 GW of coal capacity remains in operation in the U.S. That is the projected amount that will remain in operation after 2020, according to the Sierra Club.