As reported by the Christian Science Monitor, a new study by Credit Suisse suggests that up to one-fifth of U.S. coal plants may close within the next five years. The EPA is drafting new Clean Air Act regulations intended to reduce emissions of mercury, sulfur dioxide, and nitrogen oxides.
These more stringent regulations leave utilities with a difficult choice: Pay billions of dollars to upgrade their older coal plants to comply with the new regulations, or shutter the older facilities and attempt to build new natural gas and renewable generators. As natural gas becomes cheaper and pushes down electricity prices, the coal “dark spread” is reduced, placing additional economic pressure on older, less efficient coal plants.
Coal plants face additional headwinds because of potential greenhouse gas regulation. Though Congress failed to pass carbon cap and trade, the EPA is currently preparing rules to govern greenhouse gas emissions of large emitters under the Clean Air Act. With some form of greenhouse gas regulation still possible, if utilities upgrade their older coal plants with costly new pollution controls, they run the risk of incurring additional carbon abatement costs in the future. This risk further tips the balance away from coal and toward lower carbon emission generation sources.
Yet the risks are not one-sided: Several state commissions have voiced concern that building new renewable generation facilities may be cost-prohibitive. Tax incentives and subsidies play a significant role in mitigating higher costs of renewable power. The changing balance of power after the mid-term elections may put the future of some of these incentives at risk, potentially increasing the costs of developing additional renewable capacity.
The combination of these factors may result in the acceleration of coal plant retirements as utilities attempt to balance competing mandates both to comply with emissions reductions requirements and to maintain a reliable supply of low-cost electricity for consumers.