Beyond the Hype: The Full Economic Impacts of Using Coal

Sunday, February 17, 2013
Room 204 (Hynes Convention Center)
David Schlissel , Institute for Energy Economics and Financial Analysis, Belmont, MA
Historically, coal-fired generating facilities were stable and low-risk investments both to build and to operate.  However, this has changed dramatically in the past five to seven years as plant construction costs have soared, more than 160 proposed coal power plants were cancelled, the price of natural gas collapsed and operating units face heightened risks from plant aging and the prospect of increasingly stringent environmental air and water regulations. Now, instead of anticipating an expansion of coal-fired power (as it saw from the 1940s through the 1990s), the industry is facing a future fraught with the potential for an increasing tide of plant retirements.  

The question that many coal plant owners, communities and states are having to confront is whether to “retrofit, retire or repower.” To answer this question, the full economic impacts and financial risks of using coal must be considered. These include:

1.    The cost of operating and maintaining an aging coal fleet.

2.    The reduced generation and revenues that plant owners can expect as a result of the competition from natural gas-fired capacity, increased energy efficiency efforts and the greater availability of renewable resources.

3.    The significant environmental impacts of using coal and the potential for more stringent U.S. Environmental Protection Agency (“EPA”) regulation of criteria air pollutants.

4.    The need for and potential economic and financial impact from potential EPA requirements concerning coal plant water usage and coal ash disposal.

5.    Uncertainty as to the costs of complying with EPA greenhouse gas regulations or a comprehensive legislative regime for the regulation of greenhouse gas emissions.

6.    The need for and financial impact of large capital investments for scrubbers or other emissions control projects, cooling towers and/or the replacement or upgrading of major coal plant components.  

7.    Uncertainty as to whether the regulated and merchant coal plant owners will be able to recover the costs of expensive plant investments from their customers/ratepayers.

8.    Coal price and supply uncertainty.

These economic impacts and financial risks arise at a time when coal plant owners already are face significant financial pressures and when they have to make expensive transmission and distribution system infrastructure investments and expenditures for their non-coal-fired generation facilities.