Opinion: Coal’s transition in face of renewables

Gary Wolfram
The Dave Johnson coal-fired power plant is silhouetted against the morning sun in Glenrock, Wyo in 2017. The Trump administration on Tuesday proposed a major rollback of Obama-era regulations on coal-fired power plants, striking at one of the former administration’s legacy programs to rein in climate-changing fossil-fuel emissions.

Sitting with my down jacket on in my office and wearing my hat and gloves when I come in from my car got me thinking about the fact that Consumers Energy earlier this year announced plans to close two coal-fired units at its generating facility near Bay City. And is planning to eliminate its use of coal completely by 2040.

DTE announced last year that it would close its coal plants by 2040. The United States as a whole has been transitioning from coal to natural gas and renewables. It is possible that coal will not serve as a power source in the future. However, it is useful to look realistically at how much coal will figure into the energy grid in the near term.

There are a number of reasons for this transition away from coal, but much of it is due to changes in technology. The innovative use of horizontal drilling and hydraulic fracturing has driven down the price of natural gas. Ten years ago natural gas prices were above $10 per million British Thermal Units (BTU). The price has rarely been above $4 per BTU since then and currently is in the mid-$3 range per BTU.

Similarly, there has been a large reduction in the price of renewables, such as solar power. Photovoltaic solar cell prices have fallen by a factor of 25 over the last 15 years due to technological innovations. The levelized cost of solar power is now lower than most coal and nuclear power.

However, it is still likely that coal will remain part of the energy mix, certainly in the short term. One reason is that while natural gas prices have been stable or declining over the last decade, there is always a chance that the price may rise, perhaps due to international tensions or unforeseen problems with its production.

Indeed, Barclays recently warned that given lean supplies as winter sets in natural gas is susceptible to price spikes. Coal, on the other hand, will remain in abundant supply. The U.S. Energy Administration estimates that the U.S. has enough reserves to last for three centuries.

While renewable energy will no doubt continue to make inroads, in the short to intermediate term there is the problem of intermittency of such sources, so there will be a need for coal base-load power to offset this characteristics of renewables.

This is particularly true given problems in nuclear power, with six nuclear power plants having been shut down in the last five years and a dozen more to close in the next 10 years. In addition, it is economically efficient in the short term to operate a facility as long as it is covering its variable costs. Eventually a facility will be shut down if it cannot cover its total cost, but this means there will be some demand for coal-fired plants in the intermediate future.

Finally, there can certainly be advances in technology that reduce the overall costs of using coal. There may be a change in the way coal plants are built that will drastically improve their efficiency. Or, if carbon dioxide emissions are found to create what economists refer to as negative externalities, a carbon tax may lead to incentives to drastically reduce emissions from coal plants. Or advances may be made in removing carbon dioxide from the atmosphere. The NRG COSIA Carbon XPRIZE is a $20 million competitive prize to be awarded for technologies that will convert carbon dioxide emissions from power plants into valuable products that are in common use, such as building materials. There are companies, such as Climeworks in Switzerland that are capturing Carbon dioxide from the atmosphere and converting it to marketable products.

As Yogi Berra said, it’s tough to make predictions, especially about the future. But it is likely that there will be continued use of coal over at least the next three decades as markets and technologies change.

Gary Wolfram is William Simon Professor of Economics and Public Policy at Hillsdale College.