PJM Delineates the Value of Coal in America

PJM Delineates the Value of Coal in America
AP Photo/Chuck Burton

Serving 13 states and Washington, D.C. (a total of 65 million people), the PJM Interconnection recently concluded that serious problems could arise in five years under a scenario where the rapid, large-scale closures of coal and nuclear plants (baseload 24/7 sources) are exposed by fuel supply issues and an extreme weather event, such as the Bomb Cyclone experienced this past January. 

PJM’s conclusion, of course, is no surprise. Regardless of what some want you to believe, it is undebatable that both the Polar Vortex of 2014 and Bomb Cyclone of 2018 demonstrated how critical coal becomes during the country’s most challenging times to supply electric power:

More specifically, under what Ott deems plausible scenarios, a combination of coal closures, a winter cold snap, and fuel supply shortages could trigger up to 83 hours of load shedding. The system would be at risk for voltage reduction – an emergency procedure to conserve load — and power outages could ensue. PJM's findings are in line with warnings from the North American Electric Reliability Corporation (NERC), namely its Accelerated Generation Retirements; Special Reliability Assessment from September 5. 

Indeed, the warning is clear: the accelerated retirement of coal power plants over the next several years could lead to power outages, shortfalls in surplus generation, and transmission problems across a number of regions.

Coal generation capacity was 318,000 MW in 2011, and that has now fallen to nearly 250,000 MW. This 20% drop in coal – our main source of electricity since Thomas Edison started the industry in 1882 – continues to raise concerns about our grid's resiliency to cope with such a sharp reduction in baseload capacity. In turn, some experts advocate for "emergency action" to keep more coal plants from retiring prematurely. 

One key advantage that coal offers is its ability to store fuel on-site, which becomes very handy in winter when getting access to piped gas, for instance, becomes more difficult. During these tough times, it is inarguable that coal gives the grid a higher level of reliability. Again, this was clearly demonstrated in the winters of 2018 and 2014, explaining why some want to ensure that the market offers mechanisms to reward coal's proven fuel security advantage. 

For example, the U.S. Department of Energy (DOE) has proposed financial backing to help ailing coal generation in the name of resilience. After rejecting DOE's proposal to ensure full cost recovery to generators that can store fuel on-site for 90 days or longer, the Federal Energy Regulatory Commission is constantly reviewing the state of grid resilience. As stated by PJM, the problem is that coal-fired plants have attributes that are not adequately appreciated in the market: 

"There are generators who replenish their fuel supplies during the winter, but the only way to get paid for it is through capacity performance. My message would be I think there are legitimate concerns and questions about resource attributes that are not priced, which led to conversations about interrupting retirements through market mechanisms," Andrew Ott, CEO, PJM Interconnection

And when discussing the ongoing loss of U.S. coal capacity, we must be clear as to the exact path the U.S. electric power system is heading down, increasingly a "renewables and gas only" future. 

Yet, as we retire coal plants, the obvious reality is that it will overwhelmingly be natural gas units required to fill in. To illustrate, the wind and solar plants that many in the renewable business vehemently insist are perfect substitutes for coal are naturally intermittent, resources that are typically only available to generate electricity 20-35% of the time. This means that renewable build-outs are not giving us nearly the surplus capacity being claimed. 

As to when, or if, they will generate electricity, renewables are too unpredictable and erratic to be considered exact alternatives for coal: “Wind and Solar Can’t Replace Coal and Gas,The Wall Street Journal, January 2, 2017.

As for costs, declining costs for renewables will not continue on forever: efficiency gains become more difficult as a technology matures. Unfortunately, I have found it most difficult to get reliable real world cost analysis on renewables since they are so politically favored. Truth be told, there is intense pressure to support "green energy" and oppose "dirty coal."

Regrettably, whether regarding their higher costs and/or technical and practical limitations, any sort of criticism of wind and solar need not apply. There is a sensitivity toward renewables that has completely jaded our national energy-environmental discussion. "Yes, Solar And Wind Really Do Increase Electricity Prices - And For Inherently Physical Reasons."

For example, most analyses typically omit the obvious need for backup generation ("spinning reserve") to compenstate for the intermittency of wind and solar. This usually means that the cost estimates for renewables look better on paper than they ultimately end up being in the market place - think of this as the crucial difference between "laboratory versus field research."  

For gas, as the winter cold increasingly sets in, and the rising competition for natural gas between electricity generation and heating needs collide, there will be more times when prices could spike. Despite record production, domestic gas prices were recently at levels not seen since 2014, nearly $5.00 for prompt month NYMEX pricing. 

In addition, with our liquefied natural gas export capacity ready to boom across the country to 18-22 Bcf/d by 2025, it is easy to see us exporting a quarter of our current gas production by the mid-2020s. Exports are a baseload demand market that are not easily shut-off even if they cause domestic prices to rise. 

And a hugely underestimated way in which we will be using more gas is to compensate for wind and solar intermittency. “Big price declines” are still needed to make batteries competitive with gas peaker plants that have marginal costs of just $52 per MWh and are inherently entrenched in the system. 

In fact, The Brattle Group reports that rising gas prices amid coal retirements in PJM could boost electricity pricing by as much as $11 per MWh

The point is that increasingly losing coal capacity leaves almost no buffer for us if still maturing renewables fail to deliver as promised and/or if gas supply issues arise and prices go up. Especially with the ongoing "electrification of everything" making power even more vital in the years ahead, this is precisely why a more balanced and diversified approach to generating U.S. electricity has been suggested by NERC and ScottMadden, Inc, two of the leading authorities in the field. 

Let us heed their warning and recognize the true value of coal in the U.S. electric power system: it has been proven in dramatic fashion twice in the past five years winters alone. 

Jude Clemente is the Editor at RealClearEnergy. Follow him on Twitter: @judeclemente

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