Congress is due to hold hearings Tuesday on new Environmental Protection Agency standards that require coal- and oil-fired power plants to reduce their emissions of mercury, arsenic and heavy metals.
The new standards, anticipated for more than a decade, will help prevent as many as 11,000 premature deaths, 4,700 heart attacks and 130,000 asthma attacks each year, according to the EPA, and will avoid more than 500,000 missed work days and 5,700 emergency room visits annually. Power companies have up to four years to meet them.
Some coal plant owners, before the EPA’s issuance of the final rule, have said they needed more time to comply in order to keep the lights on. Several power companies have said these new standards are forcing them to close coal-fired plants prematurely — because upgrading them would be too costly.
But that’s not the whole story.
The sharp decline in natural gas prices, the rising cost of coal and reduced demand for electricity are all contributing to company decisions to retire some of the country’s oldest power plants.
Natural gas prices have plummeted with the increased shale gas production. The price of coal, meanwhile, has increased steadily over the past decade — rising nearly 6 percent in 2011 alone. This has meant that many inefficient coal-fired plants don’t operate because it’s cheaper to generate electricity with natural gas.
High average temperatures across America have also reduced electricity demand. This winter, the Tennessee Valley Authority saw a nearly 15-percent reduction in residential energy usage because of mild temperatures. That means less power produced at the most expensive plants.
There’s also the age factor. Most of the coal-fired power plants in line for retirement are, in fact, of typical retirement age. Many are between 50-60 years old; some are as old as 70. Many are “merchant” plants, whose financial performance is shaped by competitive markets.
The bottom line comes down to economic fundamentals: Power companies just can’t operate these older coal-fired plants and produce electricity at high enough prices to make money in today’s conditions.
The chief executive officer of American Electric Power, which owns a big fleet of coal-fired plants in Ohio, said as much recently when he explained a series of coal plant retirements to Wall Street analysts. He said that the coal plant closures involved “high cost plants,” which didn’t run often anyway, because it was more economical to use natural gas and other plants in the company’s fleet. Shutting down the coal plants, he said, would mean costs savings.
Southern Company, which owns many coal-fired plants and had argued that the costs of new standards are too onerous and couldn’t be achieved on time, now says that its plant upgrades “can be done for $0.5b to $1.0b less than its initial $2.7b estimate. Moreover, the company now believes it can meet EPA’s 2016 time line,” according to Bank of America-Merrill Lynch’s Mar. 15 report of its discussions with Southern’s chief executive officer.
Older coal-fired plants are kind of like an old car: You might like that model, but there comes a time when making repairs to it are more expensive and risky than trading it in to buy a new one that gets better mileage, runs cleaner and comes with more options.
Companies that operate coal-fired plants face a similar decision. They can pay to fix up an outdated, inefficient coal-fired clunker, or they can upgrade to a cleaner, more efficient plant that costs less to operate.
And their decisions can help reduce toxic pollution that harms the rest of us.
Susan Tierney is a managing principal at Analysis Group, a business strategy firm that consults on energy and other issues. She is a former assistant secretary for policy at the Energy Department and former secretary of environmental affairs of Massachusetts.