WTE: Subsidies for renewable energy hurt coal communities

PacifiCorp operates 24 coal-fired generators in the Mountain West. The latest plan, filed with regulators last Friday (October 18, 2019) has 16 units shutting down by 2030 and four more by 2038. These units are not worn out. Generators are being taken offline with years and sometimes decades of useful operational life remaining.

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, 4,500 megawatts of coal-generating capacity is set to be replaced by 7,000 megawatts of solar and wind capacity. Only one of these coal-fired units will be replaced by natural gas.

This will have devastating effects on Wyoming’s coal mines and the communities that depend on them. For instance, 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.

Similar scenarios will play out in Douglas, with the shuttering of the Dave Johnston plant by 2027 and in Rock Springs after half of the Jim Bridger units are decommissioned.

All this is driven by proponents of renewable energy who triumphantly announced that solar and wind energy have finally become cheaper to produce than electricity from coal and natural gas. This estimation is based on calculations for the Levelized Cost of Energy (LCOE).

The LCOE purports to assign a dollar cost per megawatt hour for each of the energy sources. The theory is straightforward: Add up all the costs—from plant construction to operational costs—over the lifetime of a plant and divide that number by the total megawatt-hours projected over its lifetime.

In the real world, however, much depends on fluid market dynamics that LCOE can only guess. Lazard’s 2018 report estimates that wind energy costs as little as $29 and as high as $56 per megawatt hour. Coal’s LCOE, on the other hand, is between $60 and $143. That’s an extremely wide range of estimates. Worse, LCOE estimates are rarely transparent enough to know whether state, federal and local government subsidies are included in the calculations.

These subsidies are a huge part of the story. For instance, Production Tax Credits (PTCs) give $22 per megawatt-hour to corporations for wind-generated electricity—regardless of need. 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. Second, it can force coal-fired power plants to waste their output during those times of the day when wind and solar are dumped on the grid. This artificially drives up the overall cost of coal-generated electricity.

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. Several west coast states have RPSs that depress the market for coal.

By putting a government thumb on the scale, they artificially drive up the cost of coal generated electricity while lowering its market value. Meanwhile, RPSs 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 Michael Lynch (also Forbes) in 2015, solar received 326 times more subsidy than coal—per megawatt-hour—and wind got 69 times more.

While Wyoming’s coal communities are under siege, progressives don’t seem to care. Articles and opinion columns confidently preach that renewable energy has arrived, and that coal communities are a thing of the past. Many of my neighbors and friends remain unconvinced.

Have renewable energy sources really eclipsed coal and gas? Or are skewed subsidies picking winners and losers? Some proponents of renewable energy are claiming that solar and wind is cheaper regardless of subsidies. I am not so sure. There is, however, one sure-fire way to know the truth: Stop the subsidies. We don’t need a socialized power grid. We need a level playing field.

If renewable energy has truly come into its own, taxpayers will save billions without adversely affecting renewable energy. On the other hand, if subsidies are propping up expensive and unreliable energy supplies, they need to end now. Our coal communities are too precious to throw under the bus.