Coal currently generates about 37% of America's electricity supply, a fall from almost 50% in 2008. Nearly 21GW of coal-fired electricity generation has retired over the past five years, representing 6.2% of US's 2009 coal fleet, and power companies have announced plans to shutter another 34GW.
A recent study by the Union of Concerned Scientists (UCS) suggests the retirements are unlikely to end there, identifying tens of thousands more megawatts that are "economically vulnerable" under current market conditions.
Environmental regulations are a major factor in the transition. With a 2015 deadline looming to comply with the US Environmental Protection Agency's (EPA) mercury and air toxics standards, coal producers are weighing the costs of installing expensive pollution-control equipment on an ageing fleet against investing in cleaner generation alternatives. Increasingly, say UCS researchers, the economics are favouring the alternatives. Their analysis looked at the 290GW of US coal that is not scheduled for retirement and found that required retrofits would render 71GW of it more expensive than the cost of building new wind capacity with the $0.023/kWh federal production tax credit (PTC) included. Even without the PTC, wind is a cheaper alternative to retrofitting 22GW of coal.
The story is much the same for gas, with 59GW of gas power units ripe for retirement compared with existing combined-cycle plants and 21GW that would be more expensive than new gas generators.
In addition to mercury and air toxics standards, the EPA is set to unveil draft rules in June limiting carbon emissions from existing power plants. Those are expected to put even more economic pressure on the US coal fleet, according to Steve Clemmer, the UCS's director of energy research. "Right now, we see the EPA regulations as a really big and important opportunity to replace coal with renewables and gas," he says.
Competition from gas
The question facing the US wind industry is how big a role it is likely to play. The UCS study found that in most regions of the US, simply ramping up existing gas capacity would be enough to replace the coal units that are ready for retirement. On top of that, according to research firm SNL Energy, there is about 88GW of new gas generation under development.
While there are some areas of the US, particularly the Midwest, where the all-in cost of some wind projects - even without subsidies - is lower than gas-fired generation, abundant North American natural gas supplies are keeping commodity prices low and making it difficult for wind energy to compete. Expectations that the PTC, which has expired except for projects that started construction before the end of 2013, will only survive one more short-term extension in its current form, will not help wind's case.
This does not mean, however, that wind will be shut out in a dash-to-gas to replace coal.
Volatile gas prices
This past winter, when the so-called polar vortex sent temperatures plummeting to record low levels in many parts of the US, provided a real-world lesson in the drawbacks of relying too heavily on gas. When winter electricity peaks coincide with peaks in demand for gas for home heating, it can lead to problems, says Clemmer.
"That happened several times during the winter, where power plants either couldn't get enough gas because of constraint on the pipeline system, or the price of natural gas was so high that they didn't want to purchase it and opted to utilise their plants less,"
he adds. "I think there is still a big energy diversity hedge value benefit of wind. During those recent cold periods wind was producing power, helping to keep electricity prices down and helping to free up some gas for other uses."
Gas futures are currently hovering in the $4-5 per million British thermal units (MMBtu) range on the New York Mercantile Exchange, but Dan Shreve, a partner at Make Consulting, sees factors at play that could drive those prices higher.
Plans to ship liquefied natural gas to Europe and Asia, new gas-fired generation, and $70 billon in planned new petrochemical projects using natural gas as their feedstock could drive consumption up by more than 10 billion cubic feet per day over the next ten years. That amounts to a 15% increase over the 70 billion cubic feet a day the US used in 2012.
"That's significant," says Shreve. "In terms of what that will do to natural gas prices, you could see something in the order of a 10-20% increase from today's pricing levels. And everything that contributes to an increase in natural gas prices is going to help wind," he says, noting that Make expects wind's levelised cost of electricity to continue to fall at an average rate of around 1-2% per year over the decade.
"A single (thing) that I try to make stick in people's minds is that, in terms of volatility of pricing and inevitability of price increases, gas really has nowhere to look but up, and wind's levelised cost of electricity has nowhere to go but down," says Shreve. "That in itself speaks to the competitiveness of wind moving forward."
The price risks associated with heavy reliance on natural gas are not lost on utilities, which are going to decide on the mix of resources needed to replace coal. "I think the issue with every utility in the dash to gas is that people don't want to over-extend themselves," says Shreve. With new coal limited by the lack of a cost-effective carbon-storage option and nuclear burdened by high costs and long permitting lead times, wind remains their most viable utility-scale alternative.
"I think the expectations are that you're going to have something in the order of 40GW of new gas generation brought online over the next ten years with only about 10-15GW coming offline," Shreve adds. "Despite that substantial increase in natural gas-fired generation, there is still a great deal of opportunity for wind. Currently, the way we see the market developing in the United States, we expect over 50GW to be installed over that time frame."
Clemmer of the UCS expects the EPA's upcoming carbon standards will have an impact on supply choices as policy makers and utilities look at how to reduce emissions in a cost-effective way. "Renewables and energy efficiency have a potentially big role to play in that. Each state has to complete an implementation plan and the EPA has signalled it is going to try and give states a lot of flexibility there," he says.
"The way we would like to see states approach it is to create renewable energy standards or increase the ones they have. They could do the same with efficiency," Clemmer says. "We think it is a really important mechanism that could help support wind and other renewable technologies with or without the PTC."
A new study from PJM Interconnection, which runs the largest wholesale market in the US covering 13 states and the district of Columbia, illustrates the potential. It found that raising renewable energy from about 2% of the electricity supply at present to 30% by 2026 could cut CO2 emissions by 40% and still maintain grid reliability.