Subsidies for renewable energy hurt coal communities

PacifiCorp’s profit plan seems to be a constantly moving target. Last April it announced plans to shutter coal-fired generators as early as 2022. By June—immediately after the EPA announced a new approach to carbon dioxide—plant closings were delayed for as many as ten years. Then, in early October, plans changed yet again.

The corporation has 24 coal-fired units in the Mountain West. The latest plans have sixteen shutting down by 2030 and another four gone by 2038. The closings are not driven by worn-out equipment. Generators are being taken offline with years and sometimes decades of useful operational life remaining.

Rather, the oft-repeated reason for the changes is that they will save PacifiCorp hundreds of millions. Their press release said that the loss of coal-generated capacity will be replaced by, “increases in lower-cost wind, solar and storage to manage the phased coal transition.”

All told, the projected loss of 4,500 megawatts of coal generating capacity over the next 19 years will be offset by approximately 7,000 megawatts of solar and wind capacity in the next six. Only one of the coal-fired unites will be replaced by natural gas. The rest will simply be taken offline entirely.

Naughton Plant, Kemmerer, WY

All of this promises to have devastating effects on Wyoming’s coal mines and the communities that depend on them. Historically, the Naughton power plant near Kemmerer buys fully half of the coal excavated from the Kemmerer mine. PacifiCorp’s plan will bring that number to zero.

That does not translate to a mine operating at half-capacity. It likely means that the mine will shut down altogether. This scenario will be played out in Douglas with the closing of the Dave Johnston plant in 2027 and in Rock Springs as two of four coal units are taken offline by 2028.

To soften the blow, PacifiCorp emphasized that its new integrated plan, which was set to be submitted to regulators last Friday (October 18, 2019), does not shutter coal generators as aggressively as the most cost-effective alternatives. An earlier proposal would have saved customers $599 million we are told.

At the heart of these sea changes in Wyoming’s coal industry are economic considerations. In 2018 proponents of renewable energy triumphantly announced that solar and wind energy has finally become cheaper to produce than electricity generated from coal and natural gas.

This estimation is based on calculations for the Levelized Cost of Energy (LCOE). The LCOE attempts to assign a dollar cost for the production of one megawatt hour of electricity broken down by energy sources. The theory is fairly straightforward. The idea is to add up all the costs—from plant construction to operational costs—over the lifetime of a plant and divide that number by the number of megawatt-hours that the plant will produce during that lifetime.

Used windmill blades buried in the Casper landfill

In the real world, however, so many factors are unknown and dependent on fluid market dynamics that LCOE estimates are less than conclusive. So, for instance, Lazard’s 2018 report calculates that windmills cost as low as $29 and as high as $56 to generate one megawatt hour of electricity. Coal, on the other hand, costs between $60 and $143 to produce that same megawatt-hour of electricity.

One can’t help but notice that these are extremely wide-ranging results. Different organizations post different results. Each one seems to find results that support whatever conclusions are favorable. After hours of research, this writer was unable to find any consistent averages that would make comparison any easier. To make matters worse, LCOE calculations were typically unclear whether state, federal and local government subsidies were included in the formulae.

Government subsidies are a huge part of the story. They come in a wide variety of forms. Production Tax Credits (PTCs) give $22 per megawatt-hour to corporations that dump wind-generated electricity onto the grid—whether it’s needed or not. That’s almost half of the market value of electricity. This has (at least) two effects on coal-generated electricity.

First, it manipulates the market and rewards corporations for generating wind power even if it is more expensive to produce. Second, it can force coal-fired power plants to reduce their output during those times of the day when wind and solar are available in abundance. This drives up the overall cost of coal produced power since the generators are not operating at peak efficiency.

Renewable Portfolio Standards (RPS) are another form of market distortion designed to disadvantage coal. These state laws require a certain percentage of electricity to come from wind and solar sources. Until that threshold is met, coal-generated power is unmarketable.

Such laws make it advantageous for power grids to buy as many megawatt-hours as possible from solar and wind when the sun is shining and the wind is blowing. RPSs artificially cause the cost of coal generated electricity to rise while simultaneously depressing the market for coal-generated electricity. Meanwhile, they make intermittent and unpredictable energy generation appear more valuable than a realistic market would sustain.

PTCs and RPSs are only two examples of market distortion caused by uneven government subsidies. According to James Conca in Forbes magazine, “On a total dollar basis, wind has received the greatest amount of federal subsidies. Solar is second. Wind and solar together get more than all other energy sources combined.”

According to the same article, “Solar also gets the most state-funded subsidies, some of which greatly exceed the federal subsidies. In my own State of Washington, where electricity prices are 8¢/kWh, the State pays me 54¢ for every kWh generated by my rooftop solar array, whether I use it or not. This has made my total electricity costs -7¢/kWh over the past two years, and will for the foreseeable future.”

All told, according to a 2015 Forbes article, solar energy companies receive 326 times more subsidy than coal—per megawatt-hour. Wind energy, though less, still gets 69 times more.

J.C. Penney's home, Kemmerer, WY

Coal communities of Wyoming are experiencing great distress. Meanwhile, proponents of renewable energy are telling them to get over it and admit that their way of life is a thing of the past. They confidently claim that renewable energy has finally arrived, and that fossil fuel is no longer viable economically.

Many of my neighbors and friends are confused and frustrated. They remain unconvinced and confused in a sea of acronyms like LCOEs, PTCs and RPSs. I can tell you from personal experience that it is possible to spend frustrating and fruitless hours digging for data and still have no clear answers.

With so many competing claims, there is only one sure-fire way to find the truth: Stop subsidizing them. We don’t need a socialized power grid. We need a level playing field. If renewable energy has truly come into its own, getting rid of unfair subsidies will save billions in tax-payer money without adversely affecting the renewable-energy industry.

J.C. Penney Mother Store, Kemmerer, WY

On the other hand, if these subsidies are the culprit that is destroying coal communities around the Mountain West, putting an end to them would call a ceasefire to the war on coal and let our mine workers be the masters of their own fate.