President Trump shocked the international community with his exit from the 2015 Paris climate agreement. In one tweet he stated, “China will be allowed to build hundreds of additional coal plants. So we can’t build the plants, but they can, according to this agreement.”
Coal has historically played a significant role in Ohio electricity production but has recently been dwindling. The Paris pact in conjunction with President Obama’s Clean Power Plan sought to cut carbon emissions by 26% to 28% below 2005 levels by 2025. Without the pact, analysts are placing our emission reduction between 15% to 19%. Is this global decision enough to save the coal-fired electric generation feet in Ohio?
Over the past decade, there has been a major shift in the way Ohio produces electricity. Coal plants are retiring in significant numbers while natural gas plants and renewables continue to increase. Less than a decade ago, 85% of the electricity produced was from coal with nuclear making up the balance. Today the portfolio is much more diverse at 60% coal, 24% natural gas, 13% nuclear, 2% renewables and 1% petroleum. While some are quick to blame carbon regulations for this shift most experts agree that it really was the explosion of cheap natural gas from the shale regions that changed the game.
Coal plants have high fixed and operational costs compared to other generation technologies. In addition, they cannot quickly ramp up or down to meet the dynamic nature of the wholesale electricity market. They traditionally have made their money by running full-out. The four Ohio coal plants that have closed recently and the two that will be closing next year had low capacity ratings with most running less than 50% of the time. The reason for the weak run times have been attributed to low electric prices, challenges meeting mercury emission requirements and outage issues due to the age of units.
That leaves Ohio with seven remaining massive coal plants. These plants have dodged the first round of bullets but there is another round about to come. Eleven new natural gas power plants are in the planning or construction phase with no plans for new coal plants. These natural gas plants are highly responsive to dispatch, have low operational costs and have little to worry about by way of emissions. The amount of new electricity these projects represent could serve twice the population of Ohio.
Where is all this power going to go? Demand for electricity since 2000 has decreased by 5% in Ohio even though the population has increased by 2%. This disconnect is due to the impacts of energy efficiency measures and reduced industrial demand. Since current demand won’t easily absorb this increase in generation, these new natural gas power plants will put increased pressure on the viability of the existing coal plants.
Trump’s lifting of the carbon emissions restrictions will likely do little to help a majority of the remaining coal fleet. The shift of market fundamentals has been swift and extreme. Natural gas generators and renewables are circling and ready to pounce which will likely displace the weakest of the seven remaining plants.
In response to this fundamental market shift, the major investor owned utilities in the state have either shut down the uncompetitive coal plants, sold the profitable coal plants to investors, or are seeking subsidies for some of the remaining plants from the Public Utilities Commission of Ohio and the Ohio General Assembly.
It will take time before the impacts of pulling out of the Paris pact are fully understood. Unfortunately, time is not on the side of an uncompetitive coal-fired power plant. As more and more of these plants are under the management of private investors instead of utility rate payers, investors may have little appetite to wait around. Although President Trump vowed to put coal miners back to work the prospects for employment seem better in the natural gas fields rather than returning to the coal mines.