Time for Coal to Take An Early Retirement?

Jamie Wilkie

Marginal cost of coal vs. cost of new renewables for 210 American coal plants
USD per megawatt-hour

Coal abatement curve chart
Source: Energy Innovation Policy LLC
MCOE refers to the Marginal Cost of Energy, LCOE refers to the Levelized Cost of Energy, see below for explanation.

Coal just doesn’t fit in with our hip, young power grid culture.

Young whippersnapper power facilities are talking about sexy things like “bio-this” and “sustainable-that”. Coal plants on the other hand, don’t know what any of that means and just punch the clock every day waiting to get a full pension or receive an early retirement offer and retire to Florida.

According to a recent report, that retirement offer may finally be here.

Are new renewables cheaper than existing coal?

It may not make intuitive financial sense to invest in new clean facilities when perfectly functional coal plants are running, but the report by Energy Innovation tackles that question. 

A couple of acronyms to understand:

  • The marginal cost of energy (MCOE) is the total cost of continuing to operate an existing power plant over its remaining useful life divided by the total useful power it will produce.
  • Meanwhile, the levelized cost of energy (LCOE) takes a similar approach, but also includes the initial cost to build a new facility.

The results: After crunching the numbers for 210 coal plants in the US, the authors found it would be cheaper on a per megawatt-hour basis to swap out all but one of the coal plants in their database for either local or regional wind or solar.

  • In other words, the MCOE for old coal is higher than the LCOE for new renewables. 

The authors go on to suggest that these savings could be directed to fund a significant portion of the storage capacity necessary to manage the intermittency of solar and wind.

Shop local: In roughly 40 percent of situations, local solar or wind resources are the most economic choice, partially due to additional tax credits to incentivize investment in areas that will be economically hurt by coal plant closures. However, for more than 50 percent of these plants, the most affordable renewable option is regional wind power (i.e. wind power more than 45km away from the coal plant).

Zoom out: In many developed countries, the era of coal power production is likely coming to an end. According to this report, it looks like we can fund the upcoming retirement rush in a somewhat graceful manner (unlike many pension plans out there).