By Gary Wolfram
September 7, 2017 - Michigan will continue to need electricity produced at coal plants in the years ahead for a number of reasons. One is that while renewable energy is making large advances, it will still require coal-fired plants due to the intermittent generation of wind and solar power. Another is that nuclear energy will be a smaller source of power in the state. Finally, natural gas prices can fluctuate sufficiently that the movement to natural gas plants could be reversed at some time.
Solar and wind power are increasingly competitive with fossil fuels due to advances in technology. As an example, the price of solar panel installation has fallen by over 60 percent since 2008, from $8.82 per watt to $3.36 per watt. Solar panel efficiency has been increasing at a remarkable rate. The U.S. Department of Energy’s goal is to reduce the price of solar power to 6 cents per kilowatt hour by 2020. Moreover, Improvements in the structure of the electric utility industry in Michigan are possible that will increase the incentives for innovation and improve the renewable energy market.
However, there will still be a need for coal-fired power plants. The fact that wind and solar power are intermittent means that, for the near future at least, peak-load generating capacity from fossil-fuels must be there to meet the difference between electricity demand and generation from non-fossil fuel sources.
While the percentage of power generated by coal has declined in Michigan, coal plants still account for more than a third of the state’s energy. And it is quite possible that electricity being wholesaled into Michigan will continue to come from coal-fired generators.
Nuclear power is not likely to replace coal. Last year 28 percent of the state’s net electricity generation was from Michigan’s three nuclear power plants. But Consumer’s Energy faces the loss of 10-20 percent of its electricity due to the scheduled shutdown of the Palisades nuclear plant next year. The Michigan Public Service Commission is asking Consumers where this power is going to come from. It is likely that at least a noticeable portion will come from coal.
One of the primary reasons for the decline in coal-fired generation has been the availability of low-cost natural gas resulting from advances in horizontal drilling and fracking. Natural gas prices have fallen substantially over the past years. However, natural gas prices have recently been on the rise, up more than 50 percent in the past 14 months.
This could be the beginning of price volatility in natural gas due to increase in demand and reductions in supply. U.S. exports of liquified natural gas have been rising exponentially. Exports have increased to 253,874 million cubic feet in May of this year from 17,776 million cubic feet in January of 2000. The dramatic increase in LNG exports has been good for the U.S. economy, and it’s been important for geopolitical reasons. It has enabled Ukraine, Poland and other countries that rely heavily on Russia for natural gas to break its grip on their economies.
Additional increases in demand for natural gas are coming from the manufacturing sector. Other factors, such as growth in the use of electric vehicles could also increase demand for electricity generation and put upward pressure on prices.
Meanwhile, natural gas production declined in 2016 from what it had been in 2015. This was the first time since 2005 that natural gas production fell from one year to the next. At the same time, some states have imposed regulations on fracking that will further reduce production. So it is conceivable that natural gas prices could be increasing over the next few years increasing the economic feasibility of coal-fired degeneration.
Our nation’s transition to renewable energy is probably inevitable — technology, cost, and consumer preferences are driving us there. However, in the meantime, we still need our lights to come on and assembly lines to run, and coal will continue to be part of our energy mix.
Gary Wolfram is the William Simon Professor of Economics and Public Policy at Hillsdale College.