The findings in a long awaited study on the national electricity grid may not surprise people in Wyoming.
Secretary Ricky Perry requested the study from the Department of Energy, which was intended to take 60 days, in April. Among other things, he instructed his staff to explore “ the extent to which continued regulatory burdens, as well as mandates and tax and subsidy policies, are responsible for forcing the premature retirement of baseload power plants,” like coal and nuclear.
The electricity market, which gobbles up 90 percent of the nation’s coal, is changing, and it’s changing Wyoming.
Coal demand in the Powder River Basin, where just two mines provide a quarter of the nation’s coal supply, has been eroded largely due to increasing natural gas generated power. Many coal plants that buy Wyoming coal have retired or are marked for retirement.
Meanwhile, demand for renewables in markets like Southern California has increased interest in Wyoming wind, and led to projects like the proposed 1,000-megawatt Chokecherry and Sierra Madre wind farm outside Rawlins.
Federal subsidies focused on renewable research and development, as well as tax credits for renewable power, have given that sector a helping hand leading to a meteoric rise in wind and solar projects.
Here are five takeaways from the national study that matter for Wyoming.
Gas is largely responsible for coal’s decline
For more than a decade, horizontal drilling and techniques like fracking have unleased shale gas in places like Pennsylvania, Texas and Wyoming. The sudden rush of supply has driven down the price of gas significantly, and it’s not likely to spike to historic highs. In the past year, the Henry Hub spot price has rarely peeked over $3. Its average from 2012 to 2016 was $3.20.
The biggest loser in this incredible gas boom has been coal, according to the study.
New coal capacity came online decade after decade beginning in the 1950s, but stalled out in the early ’90s when natural gas additions began to rise. There have been no additional coal plants added to the grid since 2014. Investment from Wyoming power producers reflect this trend.
In the early 2000s, Pacificorp began an enormous investment in new generation. It focused solely on gas and wind, the most economical long term, in the company’s estimation.
The grid corroborates that this trend happened nationwide.
“The biggest contributor to coal and nuclear plant retirements has been the advantaged economics of natural gas-fired generation,” the study states.
Regulations are expensive and took out the weakest plants first
Early retirement of coal-fired plants is related to the increase in environmental regulations over the last decade, the study found.
Companies were faced with a choice to invest in the technology that would clean up their older plants or retire them. More than 80 percent of the coal plants retired in the last 14 years went offline between 2012 and 2016, the period of time when compliance for regulations fell. Of particular impact was the Environmental Protection Agency’s Mercury and Air Toxin’s Standards, effective in 2015.
Compliance came with a hefty price tag, though some of the plants that eventually closed were already toward the end of their lives. The average plant in the U.S. coal fleet was built in the 1970s.
According to the study, plant operators “invested at least $6.1 billion from 2014 to 2016 to comply with [Mercury and Air Toxins Standard] or other environmental regulations,” and keep their plants running.
Wind and solar are changing the grid
Pulses of cheap power on the grid from wind and solar are changing how power is bought and sold on wholesale markets.
This has been exacerbated by both federal subsides making cheap power even cheaper and state renewable standards that mandate increased renewable fuel sources.
Those lower prices make it hard for the large coal or natural gas plants to compete.
Moreover, traditional power plants are built to run at high volume, providing a steady and predictable source of power to meet demand from millions of customers at any point in the day. Those plants weren’t designed to be as flexible as they need to be today. When coal power is more expensive than wind, companies have to ramp down those traditional power plants to run at levels that simply aren’t economic.
Subsidies have helped renewables’ meteoric rise
The U.S. has invested in energy for more than a century, from hydroelectric power in the 1930s to nuclear in the 1940s and ‘50s.
More recently, research and development dollars, as well as tax credits have been a boon for wind and solar. In 2013, 72 percent of federal electricity subsidies and support went to renewables, most of that to wind power.
Renewable power has shot up in recent years and the cost of wind generation has fallen rapidly. It’s still only a piece of the pie.
In 2016, wind energy capacity in the U.S. surpassed hydro for the first time in history. But, hydro is expected to surpass wind generation this year. Renewables, including hydro, only account for about 14 percent of power generation.
Reliability and risk
The study finds that changes to the grid, like the intermittent sources of power from renewable sources and the retirement of coal and nuclear plants, are not risking its reliability currently. But there is a risk involved, it says, long term.
“Significant progress is already being made to understand what is needed to maintain power system reliability under changing market conditions,” it states. “But more work is needed to understand what can be done to maintain resilience in a variety of conditions as the grid changes over the coming years.”