NEW YORK (AP) — Electricity prices are probably on their
way up across much of the U.S. as coal-fired plants, the dominant source
of cheap power, shut down in response to environmental regulations and
economic forces.
New and tighter pollution rules and tough
competition from cleaner sources such as natural gas, wind and solar
will lead to the closings of dozens of coal-burning plants across 20
states over the next three years. And many of those that stay open will
need expensive retrofits.
Because of these and other factors, the
Energy Department predicts retail power prices will rise 4 percent on
average this year, the biggest increase since 2008. By 2020, prices are
expected to climb an additional 13 percent, a forecast that does not
include the costs of coming environmental rules.
The Obama
administration, state governments and industry are struggling to balance
this push for a cleaner environment with the need to keep the grid
reliable and prevent prices from rocketing too much higher.
"We’re
facing a set of questions that are new to the industry," says Clair
Moeller, who oversees transmission and technology for the Midcontinent
Independent System Operator, which coordinates much of the electric grid
between Minnesota and Louisiana.
Coal is the workhorse of the
U.S. power system. It is used to produce 40 percent of the nation’s
electricity, more than any other fuel. Because it is cheap and abundant
and can be stored on power plant grounds, it helps keep prices stable
and power flowing even when demand spikes.
Natural gas, which
accounts for 26 percent of the nation’s electricity, has dropped in
price and become more plentiful because of the fracking boom. But its
price is on the rise again, and it is still generally more expensive to
produce electricity with gas than with coal. Also, gas isn’t stored at
power plants because the cost is prohibitive. That means it is subject
to shortages and soaring prices.
During the brutally cold and
snowy winter that just ended, utilities in several states struggled to
secure natural gas because so much was also needed to heat homes. Some
utilities couldn’t run gas-fired plants at all, and power prices soared
1,000 percent in some regions.
As Indiana has reduced its reliance
on coal to 84 percent from 97 percent over the last decade, its power
prices rose far faster than those of its neighbors and the rest of the
country.
That makes things tough on customers, especially big
power users like Rochester Metal Products Corp., in Rochester, Indiana.
The hulking furnaces it uses to melt scrap iron consume enough
electricity to power 7,000 households.
"As Indiana’s price of
electricity becomes less and less competitive, so do we," says Doug
Smith, the company’s maintenance and engineering manager.
Burning
coal releases toxic chemicals, soot and smog-forming chemicals, as well
as twice the amount of carbon dioxide that natural gas produces. The
Supreme Court last month gave an important approval to one Environmental
Protection Agency clean-air rule. That cleared the way for a new rule
expected to be announced by President Barack Obama early next month.
This
rule, the first to govern emissions of carbon dioxide from existing
power plants, could accelerate the move away from coal — if it survives
the legal and political challenges that are sure to come.
Already,
the current rules are expected to force power companies to shut down 68
coal plants across 20 states between 2014 and 2017, according to Bentek
Energy, a market analysis firm.
The Energy Department estimates coal plants with the output to supply 33 million homes will close by
2020.
"We haven’t operated at those low levels (of generation) for at least 30 years," says MISO’s
Clair Moeller.
To
meet high demand this past winter, American Electric Power, which
serves 5 million customers in 11 states, needed to run 89 percent of the
coal plants it will soon have to shut down, says AEP CEO Nick Akins.
This
raises concerns that the power system soon won’t have enough wiggle
room to handle extreme weather, making blackouts more likely.
"It’s a warning of what may be to come," Moeller says.
EPA
administrator Gina McCarthy, responding to critics, notes that
pollution also imposes costs on the
economy because it harms human
health and the environment. And she has also forcefully promised that
the coming carbon dioxide rule will keep costs in check and power
flowing.
"EPA is not going to threaten electric reliability," she
told a gathering of executives in Houston in March. "That is our No. 1
priority."
Richard Sedano of the Regulatory Assistance Project,
which advises officials on regulatory policy, says the transition to
cleaner sources can be smooth with proper planning.
States,
utilities and the federal government have helped reduce the need for
more power plants through efficiency programs and standards for
energy-conserving lights and appliances. Utilities are building new
transmission lines and updating grids. And customers are generating more
of their own power with solar panels and managing their consumption
through digital meters and other technology.
Also, power prices
across the U.S. are relatively low compared to those in the rest of the
developed world. Adjusted for inflation, the national average
residential price is nearly 30 percent lower than in 1984.