Congressional Watchdog Foresees Greater Coal Retirements, Fewer Retrofits Through 2025

Power companies will retire more coal-fired generating capacity and retrofit much fewer units with environmental controls than estimated just two years ago, the Government Accountability Office (GAO) reveals in a new report.

The report released on Tuesday finds that in response to shifting market conditions and four Environmental Protection Agency (EPA) rules (not including the Clean Power Plan), about 13% of U.S. coal-fired capacity—a total of 42.2 GW—has been retired since 2012 or is slated for retirement by 2025. In 2012, the GAO estimated that 2% to 12% of the nation’s total 309.7 GW net summer coal-fired capacity would be retired by 2025.

Between January 2012 and May 2014, 14.9 GW of net coal-fired summer generating capacity was retired, the GAO’s analysis of SNL data shows. Another 138 coal-fired units, 27.3 GW, will be retired between June 2014 and 2025. The estimates are lower, however, than the Energy Information Administration’s recent forecast that retirements from 2012 through 2020 could soar to 50 GW, or about 16% of capacity.

In contrast, the GAO’s analysis shows that about 70 GW (23% of total 2012 generating capacity) has either completed some type of retrofit to slash emissions of sulfur dioxide, nitrogen oxides, or particulate matter since 2012, or plan to complete one by 2025. In 2012, the GAO estimated 102 GW (33%) of coal-fired capacity would see retrofits.

Meanwhile, generators have identified another 46 generating units—a total of 7 GW—that may be retired between now and 2025, and 260 units—108 GW—that may undertake a retrofit through 2025, the GAO suggests.

Industry trends contributing to the retirement of coal units include low gas prices, increasing prices for coal, and low power demand growth. Environmental rules may accelerate retirements because power companies may not want to invest in retrofitting units with pollution controls for units they expect to retire soon for other reasons, the GAO says.

About three-quarters of the retirements will occur by the end of 2015, and 91% of the retrofits have already been completed, or are planned for completion by the end of 2017. Roughly 80% of capacity to be retired through 2025 was placed in service before 1970, while 63% are units of less than 300 MW, the GAO’s analysis shows.

The report also notes that more than a third of coal retirements will be concentrated in four states: Ohio (14%), Pennsylvania (11%), Kentucky (7%), and West Virginia (6%).

Report Lauds Agency Efforts to Monitor Sector’s Response to Rules

The Congressional watchdog conducted the study at the request of Sen. Lisa Murkowski, ranking member of the Senate Committee on Energy and Natural Resources. In light of the EPA’s June 2014 proposal to regulate carbon dioxide emissions from existing power plants, Murkowski asked the GAO to examine how the EPA, Department of Energy (DOE), and Federal Energy Regulatory Commission (FERC) have responded to the organization’s 2012 recommendation that called for the development of a formal, joint process to monitor the coal power industry’s progress to comply with four EPA rules until at least 2017.

The rules include the Cross-State Air Pollution Rule, Mercury and Air Toxics Standards (MATS), Cooling Water Intake Structures rule, and Disposal of Coal Combustion Residuals rule (see POWER‘s regulatory update of most EPA rules affecting the power sector here).

In its new report, the GAO said the agencies had taken “initial steps” to monitor industry progress, including jointly conducting regular meetings with key industry stakeholders, including regional transmission organizations (RTOs). The GAO says, however, that efforts are currently focused primarily on the industry’s implementation of the only one of the four rules that has taken effect to date: MATS.

Will the Rules Compromise Reliability?

Based on information obtained at those meetings, officials from the EPA, DOE, and FERC reportedly told the GAO that they “do not anticipate widespread reliability concerns.” But officials from FERC also underscored that until all rules have been finalized, “conditions will continue to change” and continued monitoring of potential reliability or resource adequacy will be needed.

RTO officials, on the other hand, told the GAO that recent and pending actions on the regulations could have impacts on the industry’s ability to reliably deliver power. “Officials from several RTOs told us that, while widespread reliability concerns are not anticipated, some regions may face reliability challenges including challenges associated with increasing reliance on natural gas,” the GAO says. An unnamed RTO even reported that its region is forecasting shortfalls in its reserve margin.

Other RTO officials and industry stakeholders expressed concerns about the rules’ impacts on power prices. Yet, RTOs don’t estimate the impacts of potential retirements on the markets “due to the number of factors involved in determining market prices and affecting markets,” the GAO notes.

FERC, DOE, and EPA do not evaluate the potential impacts of planned retirements or retrofits on power prices. However, the EPA employs power sector modeling to analyze the potential impact of the rules (as well as the new carbon rule) on economic factors. Taking into account rules that were enacted by August 2013, the EPA’s base case projects a national average retail power price of 10.4 cents/kWh in 2020, the report says.

The GAO did not make new recommendations in the report. However, it reiterated that it is important that the four agencies jointly monitor industry progress and fully document those steps. It also said the agencies concurred with the GAO’s findings.

—Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)