Staff Report to the Secretary (of Energy) on Electricity Markets and Reliability
(Please note, material from the US Department of Energy: Copyright concerns are nil.)
https://energy.gov/downloads/download-staff-report-secretary-electricity-markets-and-reliability
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Between 2002 and 2016, 132,000 MW of generation capacity retired—representing about 15 percent of the total 2002 installed base—and 390,500 MW of new capacity was added. While power plants retire for a variety of reasons, several factors have contributed to recent retirements and continuing pressure for additional retirements.
The biggest contributor to coal and nuclear plant retirements has been the advantaged economics of natural gas-fired generation.
• Low-cost, abundant natural gas and the development of highly-efficient NGCC plants resulted in a new baseload competitor to the existing coal, nuclear, and hydroelectric plants. In 2016, natural gas was the largest source of electricity generation in the United States—overtaking coal for the first time since data collection began.20 The increased use of natural gas in the electric sector has resulted in sustained low wholesale market prices that reduce the profitability of other generation resources important to the grid. The fact that new, high-efficiency natural gas plants can be built relatively quickly, compared to coal and nuclear power, also helped to grow gas-fired generation. Production costs of coal and nuclear plants remained somewhat flat, while the new and existing, more flexible, and relatively lower-operating cost natural gas plants drove down wholesale market prices to the point that some formerly profitable nuclear and coal facilities began operating at a loss. The development of abundant, domestic natural gas made possible by the shale revolution also has produced significant value for consumers and the economy overall.
Another factor contributing to the retirement of power plants is low growth in electricity demand.
• Growth of total electricity use has slowed from averaging 2.5 percent annually in the late 1990s, to averaging 1.0 percent annually from 2000 to 2008, to remaining roughly flat since then.21 Changes in electricity demand—particularly the apparent decoupling of economic output and electricity demand—have been driven in part by energy efficiency policies. The combination of slow growth in electricity demand and the 390,500 MW of capacity additions from 2002 to 2016 made significant amounts of older, higher-cost capacity redundant.
Dispatch of VRE has negatively impacted the economics of baseload plants.
• Since 2007, the contribution to total generation from wind and solar has grown quickly, accelerated by government policies and mandates. State renewable portfolio standards (RPS) have been the largest contributor—associated with 60 percent of VRE growth since 2000— followed by Federal tax credits and government research (which contributed to the dramatic drop in wind and solar technology costs). Because these resources have lower variable operating costs than traditional baseload generators, they are dispatched first and displace baseload resources when they are available.
• Participants on a panel of economists at a May 2017 FERC technical conference cited state-level RPS and Federal tax credits for VRE as examples of wholesale market impacts and distortions.
Competition from resources that benefit from such policies reduces revenues for traditional baseload power plants by lowering the wholesale electric prices they receive and by displacing a portion of their output.
Investments required for regulatory compliance have also negatively impacted baseload plant economics, and the peak in baseload plant retirements (2015) correlated with deadlines for power plant regulations as well as strong signals of future regulation.
• A suite of environmental regulations scheduled for implementation between 2011 and 2022 has had varying degrees of effects on the cost of generation. For example, the largest number of coal plant retirements occurred in 2015—the deadline for coal and oil plants to add pollution control equipment for Mercury and Air Toxics Standard (MATS) compliance. In the same year, the Environmental Protection Agency (EPA) finalized its Clean Power Plan, which, if fully implemented, would place additional pressure on coal-fired generation. Nuclear power plants also face regulatory costs—principally the Cooling Water Intake Rule. Three nuclear plants that announced closure (Oyster Creek, Diablo Canyon, and Indian Point) have cited disputes with their respective states, who implement the rule, as among the reasons for plant retirement.
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