By Tim Benson

May 8, 2018 - A new Policy Study authored by Isaac Orr, a policy fellow at the Center of the American Experiment, and Frederick D. Palmer, The Heartland Institute’s senior fellow for energy and climate, notes electricity prices in the United States have risen by 36 percent since 2003, and that one of the main causes of this spike has been the premature closure of coal-fired power plants.

Orr and Palmer argue the premature shut down of these plants is caused in part by state and federal policies, such as renewable energy mandates (REMs), and subsidies to “renewable” sources of energy, which have distorted wholesale power markets and purposefully made electricity more expensive and more difficult for coal to remain a competitive segment of the country’s energy portfolio.

In “Public Policy and Coal-Fired Power Plants,” the third in a series of four policy papers by Orr and Palmer, the authors note the 36 percent price increase has come at a time when natural gas prices have fallen, coal prices have remained relatively stationary, and electricity demand has been “essentially flat.” Since 2010, at least 250 coal plants, providing more than 34,000 megawatts of electricity, have been taken offline. These plants could have produced electricity at much more affordable rate compared to newly constructed natural gas plants or solar and wind farms.

“As existing power plants are shut down before the end of their useful lives, they will be replaced with newer power plants that are inherently more expensive to build and operate because they must repay the debt used to finance their construction. These higher costs will be passed on to ratepayers: residential consumers, businesses, and manufacturers,” Orr and Palmer note.

Hurting the coal industry are the combined $11 billion in federal subsidies received by wind and solar energy each year. Respectively, these two renewables receive 52 times and 345 times mores subsidies than coal. In absolute terms, wind receives $35.33 per megawatt hour (MWh) produced and solar receives $231.21 per MWh. Coal receives just 57 cents per MWh. Without these subsidies, the wind and solar energy simply could not survive.

Renewable energy mandates, passed into law in 29 states, also distort the U.S. energy market, to the detriment of consumers and cheap, reliable energy sources like coal. More the half the growth in the wind and solar industries since 2000 is directly tied to REMs, which were originally passed “to encourage a minimum level of investment needed to bring renewable technologies up to scale and reduce their costs. Today, these mandates are increasingly being used to force an uneconomic transition to 50 percent or even 100 percent renewable electricity generation within 13 to 23 years, a timetable that cannot be met.” Further, “utilities paid $2.6 billion in 2014 to comply with REMs, averaging $12 per MWh, roughly 1.3 percent of average retail electricity bills. These costs will increase dramatically in the next decade as most state REMs are scheduled to reach their mandatory compliance deadlines between 2020 and 2030.”

These costly policies propping up renewables and damaging coal greatly harm low-income households, who spend a higher share of their income on electricity. More spent on electricity means less spent on other necessities like food and rent and less to save. Roughly 45 percent of Americans already live in “energy poverty,” meaning they spend more than 10 percent of their income on energy costs.

“Failing to act to preserve the existing coal-fired generation fleet will impact all U.S. citizens and enterprises, hurting families, businesses, and manufacturers,” Orr and Palmer conclude. “Low-income households are especially harmed because they pay the largest share of their income in energy bills. Businesses are harmed by increasing commercial electricity prices and the potential for power outages if the reliability of the grid is undermined. … The United States has among the lowest industrial electricity rates in the world, but this competitive advantage is threatened by policies that prioritize intermittent renewables over affordable baseload power.” 

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