Expect Higher Prices for Power
As coal-fired plants close, supply will dwindle
22 May 2014
By Jonathan Fahey, AP Energy Writer
NEW YORK - Electricity prices are probably on their way up across
much of the U.S. as coal-fired plants, the dominant source of
cheap power, shut down in response to environmental regulations
and economic forces.
New and tighter pollution rules and tough competition from cleaner
sources such as natural gas, wind and solar will lead to the
closings of dozens of coal-burning plants across 20 states over
the next three years. And many of those that stay open will need
Because of these and other factors, the Energy Department predicts
retail power prices will rise 4 percent on average this year, the
biggest increase since 2008. By 2020, prices are expected to climb
an additional 13 percent, a forecast that does not include the
costs of coming environmental rules.
The Obama administration, state governments and industry are
struggling to balance this push for a cleaner environment with the
need to keep the grid reliable and prevent prices from rocketing
too much higher.
"We're facing a set of questions that are new to the industry,"
says Clair Moeller, who oversees transmission and technology for
the Midcontinent Independent System Operator, which coordinates
much of the electric grid between Minnesota and Louisiana.
Coal is the workhorse of the U.S. power system. It is used to
produce 40 percent of the nation's electricity, more than any
other fuel. Because it is cheap and abundant and can be stored on
power plant grounds, it helps keep prices stable and power flowing
even when demand spikes.
Natural gas, which accounts for 26 percent of the nation's
electricity, has dropped in price and become more plentiful
because of the fracking boom. But its price is on the rise again,
and it is still generally more expensive to produce electricity
with gas than with coal. Also, gas isn't stored at power plants
because the cost is prohibitive. That means it is subject to
shortages and soaring prices.
During the brutally cold and snowy winter that just ended,
utilities in several states struggled to secure natural gas
because so much was also needed to heat homes. Some utilities
couldn't run gas-fired plants at all, and power prices soared
1,000 percent in some regions.
As Indiana has reduced its reliance on coal to 84 percent from 97
percent over the last decade, its power prices rose far faster
than those of its neighbors and the rest of the country.
That makes things tough on customers, especially big power users
like Rochester Metal Products Corp., in Rochester, Indiana. The
hulking furnaces it uses to melt scrap iron consume enough
electricity to power 7,000 households.
"As Indiana's price of electricity becomes less and less
competitive, so do we," says Doug Smith, the company's maintenance
and engineering manager.
Burning coal releases toxic chemicals, soot and smog-forming
chemicals, as well as twice the amount of carbon dioxide that
natural gas produces. The Supreme Court last month gave an
important approval to one Environmental Protection Agency
clean-air rule. That cleared the way for a new rule expected to be
announced by President Barack Obama early next month.
This rule, the first to govern emissions of carbon dioxide from
existing power plants, could accelerate the move away from coal -
if it survives the legal and political challenges that are sure to
Already, the current rules are expected to force power companies
to shut down 68 coal plants across 20 states between 2014 and
2017, according to Bentek Energy, a market analysis firm.
The Energy Department estimates coal plants with the output to
supply 33 million homes will close by 2020.
"We haven't operated at those low levels (of generation) for at
least 30 years," says MISO's Clair Moeller.
To meet high demand this past winter, American Electric Power,
which serves 5 million customers in 11 states, needed to run 89
percent of the coal plants it will soon have to shut down, says
AEP CEO Nick Akins.
This raises concerns that the power system soon won't have enough
wiggle room to handle extreme weather, making blackouts more
"It's a warning of what may be to come," Moeller says.
EPA administrator Gina McCarthy said pollution also imposes costs
on the economy because it harms human health and the environment.
And she has also forcefully promised that the coming carbon
dioxide rule will keep costs in check and power flowing.
"EPA is not going to threaten electric reliability," she told a
gathering of executives in Houston in March.