Why are Coal and Nuclear Power in Trouble?

By ·August 27, 2018
Tufts University

The Issue:

The Trump administration has proposed or is considering several policies that would provide economic relief to coal and nuclear electric plants. Proposals range from the Affordable Clean Energy rule, in which the Environmental Protection Agency is suggesting changes to policies regarding emissions standards that could prolong the life of some of the oldest remaining coal power plants, to the leaked proposal from the Energy Department which would order grid operators to buy power from struggling nuclear and coal plants in order to prevent their retirement based on seldom used national security laws. While these proposals have yet to come into effect, the crisis for coal and nuclear plants illustrates the broader shift currently underway in the U.S. electric sector away from coal and nuclear and towards renewables and natural gas.

Market forces are shifting  U.S. electric generation away from coal and nuclear power, and proposed policies to keep these sources of electricity going will be expensive and, in the long run, likely ineffectual given the falling costs of natural gas, wind and solar.

The Facts:

  • Coal was the main source for electricity generation in the United States for many decades, but its share of the market has been declining and it was recently displaced by natural gas as the main source of electricity (see chart). In 2017, natural gas was the largest source of U.S. electricity generation —about 32 percent — followed closely by coal at about 30 percent. Nuclear energy was the source of about one fifth of U.S. electricity generation that year, while renewable energy sources also provided another fifth of U.S. electricity with hydropower and wind energy being the main sources (see here).
  • A significant number of power plants have been retired in recent years — including primarily coal but also nuclear plants. The majority of power plant retirements since 2008 have been coal followed by older natural gas steam turbines, and large nuclear power plants have shut down as well, according to the according to the U.S. Energy Information Administration. National coal plant peak capacity of 310GW in 2011 has shrunk to about 260GW in 2017, with an additional 25 GW of capacity to be retired between 2018 and 2020. Another measure of coal's waning presence in the U.S. is the relatively low total amount of time a plant is running, which was on average 56 percent of the time in 2018, down from an average of about 70 percent in the early 2000s. Five large nuclear plants, with a combined 5GW of capacity, have retired over the last four years, with an additional 6 plants scheduled to retire in the coming decade.
  • Environmental regulations have played a role in coal plant retirements and, as a result, have reduced domestic coal consumption--but other factors have had a more significant impact. It is difficult to empirically estimate the role of environmental regulations on coal's demise and this is subject of debate (see here for instance). A 2017 Columbia University report detailed the challenges facing the U.S. coal industry and estimated that Obama-era regulations, based on Environmental Protection Agency cost projections, were responsible for a 5 percent decline in U.S. coal generation and a 3.9 percent decline in US coal production in 2016 (relative to 2011 levels). However, the report assigns a much greater role to other factors, concluding that increased competition from cheap natural gas was responsible for 49 percent of  the decline in domestic U.S. coal consumption. In addition, the report estimated that a decline in demand for electricity,  together with the growth in renewable energy sources were responsible for another 26 and 18 percent of the decrease in domestic coal consumption respectively (see page 5). Aside from federal environmental regulations from the Obama administration, growing state renewable energy portfolios and improved energy efficiency standards, along with federal subsidies for wind and solar have also eroded coal and nuclear energy’s market share. In addition, the average construction costs for wind and solar power plants have been falling making the future outlook for these forms of power generation more competitive with coal and nuclear.
  • There has been a huge buildout of natural gas since the fracking revolution began more than a decade ago. This is a well known story, but it is important to note that the price declines in natural gas were much greater and faster than most analysts expected. In 2008, the price for natural gas for power generation was $9.3 per Thousand Cubic Feet, by 2017 the price had dropped to $3.5 per Thousand Cubic Feet, far lower than the annual EIA Energy Outlook reports had predicted (see here for archived EIA reports).
  • Wholesale electric power prices have been falling steadily over the last decade. This is largely the result of low natural gas prices, along with market reforms that determine the clearing price for electricity. Wholesale prices are so low that coal plants usually cannot generate enough revenue to cover their operating costs. Nuclear plants, which have very high fixed costs and must continuously run due to their design constraints, often have to operate at a loss.
  • While localized transmission issues do exist for natural gas pipelines and electricity transmission, reliability and resiliency of the U.S. electrical grid is at its highest yet. The Trump administration’s rationale for subsidizing coal and nuclear plants is that they have long-term fuel guarantees meaning that, unlike gas-powered plants for instance that require supplies piped-in, they are able to stockpile fuel supplies on-site. However, an October 2017 Rhodium Group report noted that less than one-tenth of one percent of all outages since 2012 have been the result of fuel supply issues. Indeed, the Federal Energy Regulatory Commission disagreed with the Trump administration that there is a reliability crisis in the U.S. electric sector.
  • Proposed bailouts would probably not do much in the long-run to help financially unstable coal and nuclear plants and would be expensive. While the Department of Energy has not released cost estimates for its proposed coal and nuclear bailout, it is likely to cost billions a year and would increase the cost of electricity for most consumers. This proposal would upend wholesale electric reforms by offering preferential treatment to more expensive coal and nuclear plants above cheaper resources. Finally, it would do nothing to stop the falling costs of natural gas, wind, and solar.

What this Means:

Coal and nuclear power plants have been suffering financially for the last decade due to the emergence of cheap and abundant natural gas, power market reforms, the decreasing cost of renewables, and, for coal plants, environmental regulations on emissions. However, coal and nuclear power will continue to be part of the mix in the United States for some time. It is predicted that coal will make up roughly 28 percent and nuclear 20 percent of generation in 2030. Yet, almost no one believes that another coal plant will be built in this country, and it would be very difficult and costly to build another nuclear plant. Clearly, the U.S. electric sector is shifting into something that is more low-carbon, distributed, cheaper, more resilient, and reliable than a centralized grid, and only drastic federal intervention would be able to slow that shift.


Energy Policy / Environment
Written by The EconoFact Network. To contact with any questions or comments, please email [email protected].
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