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The U.S. Southeast: A Hotspot For Uneconomic Fossil Power, Already Costs Consumers Millions, Risks Billions In Stranded Assets

Several major utilities in the U.S. Southeast have recently announced goals to reach low- or zero -carbon status. But you won't exactly get whiplash trying to keep up with a wave of immediate fossil fuel shutdowns following these commitments.

The targets from utilities like Southern Company and Duke Energy stretch out three decades from now, allowing a gradual phase-out of coal while increasing plans for natural gas-fired power.

The problem for consumers and the climate is that 95 percent of coal plants in the region are uneconomic compared to clean energy today, costing tens of millions of dollars annually. Of the six major power providers in the Southeast—Southern Company, Duke Energy, PPL, Dominion, Entergy, and TVA—five could replace every single megawatt of their coal-fired capacity now with cheaper renewable energy.

Meanwhile clean energy portfolios are cheaper to build than nearly all of the natural gas projects planned across the U.S., risking billions in stranded or uneconomic assets within a few decades. By embracing smart policy – and cheap renewables – utilities can save money for their consumers and their shareholders.

No country for old coal

Existing coal plants have become economically unjustifiable across the country, as shown in the recent “Coal Cost Crossover” report, which found local wind and solar could replace 74% of the existing U.S. coal fleet at an immediate savings to customers.

But this issue is especially prevalent in the Southeast U.S., where nearly all plants are identified as "substantially at risk" or "at risk."

Cost of operating existing coal power plants compared with building new renewable energy
The marginal cost of energy in 2018 and 2025 for existing U.S. coal-fired power plants compared with building new wind or solar generation resources within 35 miles. ENERGY INNOVATION/VIBRANT CLEAN ENERGY

These red circles clustered together means wind or solar could replace a coal plant’s total output at an all-in cost lower than that plant’s ongoing marginal costs. The economics are even worse in the bright red circles, where clean energy would be more than 25% cheaper than operating the coal plant. It's important to note that this analysis only includes renewable energy within 35 miles of each coal plant, requiring no new transmission infrastructure and creating the prospect of new clean energy jobs in the same community – which can equal an 8%-19% increase over the national average income.

Now consider the same view overlaid with the levelized cost of energy (LCOE), the cost per unit of energy produced over the lifetime of the power plant, for solar photovoltaics in 2018. Solar LCOE in the service territories of these Southeast U.S. utilities are among the lowest nationwide.

The cost of building new wind or solar energy within 35 miles of coal power plants.
The levelized cost of energy in 2018 and 2025 for building new wind or solar generation resources within 35 miles of existing U.S. coal-fired power plants. 2018 prices include the 30% federal investment tax credit, which phases down to 10% in 2022. ENERGY INNOVATION/VIBRANT CLEAN ENERGY

On decarbonization, utilities talking the talk but rarely walking the walk

Utilities are acknowledging this dynamic to an extent with their carbon reduction goals. Duke Energy, for example, said in September that it would shutter coal plants earlier than planned as part of its goal to reach net-zero carbon by 2050. Southern Company says it will reach "low- to no-carbon" in the same time frame. Nationally, 43 utilities have made carbon reduction pledges at various levels of ambition, as detailed in the Smart Electric Power Alliance’s interactive national map.

SEPA national utility decarbonization pledges
Utility carbon reduction tracker. SMART ELECTRIC POWER ALLIANCE/OAK RIDGE NATIONAL LABORATORY

But utilities in the Southeast are taking decades to phase out coal assets while planning significant new fossil-fuel generation additions. If Duke Energy sticks to its current integrated resource plan, it will still rely on coal for 17% of its power capacity in 2033. Natural gas will account for 25% of its capacity—Duke Energy plans on adding 9,534 megawatts (MW) of new gas capacity, compared with just 3,671 MW of solar. TVA also leans heavily on gas in its plan for the next two decades, allowing for up to 17,000 MW of additions.

These plans fail to account for just how much renewable energy prices have fallen. Solar-plus-storage is now competitive with new gas-fired power plants: NV Energy in Nevada recently procured 1,200 MW solar and 580 MW of four-hour battery storage, including one project that will come in at $35 per megawatt-hour (MWh), several dollars lower than the average $41-74/MWh range for new combined cycle natural gas generation. Similarly, the Los Angeles Department of Water and Power just approved a contract for 25 years of battery-backed solar power at 3.3 cents per kilowatt-hour.

Rocky Mountain Institute (RMI) research shows portfolios of clean energy are already cheaper to build than 90% of planned gas projects nationwide, while continued clean energy cost declines will render gas plants uneconomic to operate before their expected life is over.

Clean energy portfolio costs compared to natural gas generation
Historical and projected evolution of clean energy portfolio costs compared to natural gas generation. ROCKY MOUNTAIN INSTITUTE

Meanwhile, Minneapolis-based Xcel Energy is capitalizing on these clean energy price trends, promising that its portfolio will be not "net-zero" (which could allow for offsets) or "low-carbon," but entirely carbon-free by 2050. Xcel saw an "unprecedented" response to its 2017 resource solicitation, which returned median bid prices for clean energy at some of the lowest levels yet seen, including $18.10/MWh for wind, $21/MWh for wind with battery storage, and $36/MWh for solar photovoltaic with battery storage.

In the short term, the utility is still hanging on to some coal and gas, which together will still account for 39% of its generation in 2022. But Xcel is reducing, not growing, its gas capacity in favor of renewable energy – primarily wind – which will account for 48% of its electricity in 2022 (compared with 27% in 2017).

Xcel Energy projected 2022 energy mix and reductions in carbon emissions.
Historical and projected evolution of clean energy portfolio costs compared to natural gas generation. ROCKY MOUNTAIN INSTITUTE

Duke Energy and Southern Company are more indicative of the national blind faith in gas than Xcel. Utilities currently have $90 billion of planned investment in new gas-fired power plants and more than $30 billion of planned investment in proposed gas pipelines. RMI’s research forecasts this gas build-out could lead to $100 billion in stranded or uneconomic assets as clean energy coupled with storage, efficiency, and demand response keep getting cheaper over time.

Policy can help utilities leapfrog gas

Today’s status quo of investing in uneconomic gas is not the product of evil utility CEOs, but of an outdated regulatory and business model that rewards capital investment and punishes innovation and risk taking.

Utilities invest in gas for the same reason they’ve invested in coal – it’s a low-cost, mature technology that offers an opportunity to provide healthy returns for 30-50 years. But similar lower-risk profit opportunities lie with cheaper, cleaner renewables, especially if policymakers embrace the change with utilities.

Xcel CEO Ben Fowke recently articulated the utility’s “steel for fuel” strategy, where the company would replace its fossil resources (fuel) with new capital-intensive utility-owned solar and wind projects (steel), securing healthy returns while protecting consumers and the climate. Xcel’s ability to rapidly transition from coal recently received a boost when Colorado passed legislation enabling it to access low-cost financing to pay off coal assets.

These types of measures could help Duke Energy, for example, pursue an alternative integrated resource plan proposed earlier this year by the North Carolina Sustainable Energy Association. That plan would shrink the utility’s portfolio share of coal and gas to 14% in 2033 instead of 42% by scaling up renewable energy and imports to take advantage of domestic and regional low-cost clean energy resources.

There's simply no good reason for utilities in the Southeast U.S. to keep burning coal and building new gas when they have an abundance of compellingly cheap solar energy resources at hand. So what are these utilities waiting for? 

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Matt Chester's picture
Matt Chester on Oct 21, 2019 12:39 pm GMT

Hopefully we're seeing the start to this change-- NC is one of the biggest solar stories in the past 5 years, Florida utilities are trying to embrace solar in response to the large-scale calls from citizens towards deregulation, and the only active nuclear construction project in the US is in Georgia. 

Mike Cassity's picture
Mike Cassity on Oct 22, 2019 2:02 pm GMT

Thanks for this informative post.

Roger Arnold's picture
Roger Arnold on Oct 26, 2019 2:12 am GMT

This post indirectly highlights a major confusion factor in the clean energy debate. That factor is the overly broad usage of the term LCOE, and subsequent misunderstandings that arise.

We really need to start distinguishing between two different "flavors" of LCOE. One is the levelized cost of as-available electricity. I'll dub that LCAAE. It's the flavor of electricity that intermittent renewables deliver. The other is the levalized cost of on-demand electricity -- LCODE. It's the flavor that the grid delivers. Both relate to the cost of a kilowatt-hour (kWh) of electricity, but they are not the same.

Some applications are happy to utilize lower cost as-available electricity (AAE). To do so, they must be able to use power intermittently, as it happens to be available.  I term them discretionary loads, because the timing of their operation is discretionary.

Applications that use power continuously or according to customer needs require on-demand electricity (ODE). Within limits, energy storage can be used to translate AAE to ODE, but at a cost. AAE can fluctuate widely over a range of timescales. Battery storage is economical for smoothing the minute-to-minute fluctuations in AAE. It's also now adequate to accommodate periods on the order of an hour that it takes for an orderly ramp up or shut down of big fossil-fueled generators. But batteries are still far too expensive to carry the full nightime load of the grid when solar output is zero. They are orders of magnitude away from being able to carry the load for days or even weeks of truly adverse weather. For that, dispatchable generation sufficient to meet the full grid load remains essential.

There's no question that AAE from intermittent renewables has become cheap. The LCAAE is down to a few cents per kWh, for both wind and solar. That's the basis for proclaiming that renewables are now "cheaper than coal or gas". But the LCAAE does not account for the cost of everything required to translate AAE into ODE. Worse, it places most of the burden of that translation on the fossil-fueled side of the grid, while simultaneously depriving that side of the revenue it would receive when renewables are available. Of course coal and gas are uneconomical under those conditions.

Unfortunately, we can't just replace those systems with wind and solar generation, nor with wind and solar plus batteries. AAE resources lack dispatchability -- the essential feature needed to support ODE. Adding battery storage capacity in amounts that are affordabable only somewhat reduces the fraction of time that available RE resources are unable to meet demand. That's not good enough. So the fossil resources have to be kept around, even if they're only delivering a fraction of the energy they could deliver.

That's why adding renewables to the grid always increses the average cost of electricity. They increase total system cost. That cost has to be covered, one way or another. And it nearly always the ratepayers who end up covering it. It's no coincidence that California, with the highest renewable energy levels in the nation, also has the highest electricity rates in the nation.

I know that what I've just written can be interpreted as condemnation of RE and a call to stay with fossil-fueled generation. I definitely do not mean it that way. CO2-driven global warming and rapid climate change are quite real, and the need to slash CO2 atmospheric emissions is urgent. With the very low LCAAE that wind and solar have achieved, rapid buildup of those resources  appears to be the most expedient and ecconomical way to achieve that. But it's conditional on solving the ODE problem in a cleaner and more efficient manner than keeping old coal and gas-fired plants online.

Good solutions for that problem do exist, or can be developed.  The problem is that they are in their infancy, not yet economically competitive. They will require  policy support similar to that extended to RE resources if they are ever to achieve commercial viability. Unfortunately, that will be hard to secure while the RE community is in denial about the existence of the problem.

Nathan Wilson's picture
Nathan Wilson on Oct 28, 2019 12:06 pm GMT

Good points Rogers.

The article fails to appreciate the importants of fossil gas as a backup for variable renewables.  The notion of renewables helping "utilities to leapfrog gas" seems to be completely unsupported by engineering studies.

The article also leaves out the fact that the south east part of the US has very poor wind resources, and a combination of wind and solar typically is much cheaper (i.e. needing much less storage and resulting in less curtailment) than solar alone.  

The densely forested southeast obviously has a very different (rainier) climate than the desert southwest.  The claim that solar (even with batteries) can exist there without gas backup is highly unconvincing.

Matt Chester's picture
Matt Chester on Oct 28, 2019 2:10 pm GMT

The densely forested southeast obviously has a very different (rainier) climate than the desert southwest.

It's also important to highlight that even discussing the U.S. southeast alone opens up much variability in what we're actually talking about because the geography can vary immensely across the region

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