Coal plants are increasingly under economic pressure due to slow load growth, low natural gas prices, and declining wind and solar costs, among other factors. As a result, about 30% of US coal capacity has retired since 2010, with an additional 55 GW slated to retire by 2030.

In addition, mounting pressure to reduce greenhouse gasses is spurring decarbonization of the power sector, which will require the country’s remaining coal plants to either retire or eliminate their carbon emissions over the next 15–20 years.

Early retirement can be an appealing proposition for both utilities and customers, but recovery of major undepreciated investments remains a significant obstacle. Across the country, utilities’ unrecovered coal plant investments amount to over $100 billion.

Many utilities are transitioning to clean energy resources by relying on existing and new tools that help to recover undepreciated investments while reducing costs to ratepayers. 

1

Retirements have reduced coal capacity, but remaining capacity will exceed what 2035 emissions targets require

The transition away from coal has already begun, but without further action, a substantial amount of coal capacity will remain in the US for decades. To reach Biden’s carbon-free electricity goal, 160 GW of additional coal capacity would have to either retire or eliminate its carbon emissions by 2035. Even absent further federal policy, coal plants are already experiencing worsening utilization and economic viability.

The share of regulated units among coal retirements have been increasing recently, and will account for most of the announced retirements by 2025 (see FIGURE 1).

Based on announcements to date, PJM will have more coal capacity than any other RTO starting in 2023, though PJM has retired coal capacity at the highest rate. Outside of the RTO regions, about 54 GW of coal will remain by 2030 (see FIGURE 2 below). At the end of the decade, PJM, MISO, and non-RTO regions together account for most of the remaining coal capacity.

Figure 1: US coal capacity projections. 168 MW will remain by the end of the decade.

Sources and Notes: Brattle’s analysis based on data from Velocity Suite, ABB Inc; US EIA Annual Energy Outlook 2021.

Figure 2: Coal capacity by RTO. PJM is poised to have the most coal capacity by 2023.

Sources and Notes: Brattle’s analysis based on data from Velocity Suite, ABB Inc.

2

Deteriorating economics of retaining coal plants

Coal plants are under economic stress in many parts of the United States. 170 GW of coal generation capacity in the US, or about two thirds of the fleet, had negative operating margins relative to electricity prices in regional markets in 2017. In PJM, only 5% of coal units recovered their avoidable costs in 2020, down from 26% in 2019 and 68% in 2018.

Coal Plants under economic Stress

Worsening utilization for coal plants

In addition, federal and state governments are pursuing aggressive decarbonization policies to reduce greenhouse gas emissions:

• About half of US states have committed to greenhouse gas emissions reduction goals.
• Over 170 cities have committed to 100% clean, renewable energy.

However, recovery of recent investments in major emissions control equipment to comply with various environmental laws pose a major obstacle to early retirements.

3

Recent undepreciated investments in environmental control equipment pose major obstacle to early retirements of utility-owned coal plants

Between 2010–2019, 77 GW of regulated coals plants were equipped with capital-intensive environmental control technologies to comply with various environmental laws. For example, 38.1 GW of coal capacity installed Selective Catalytic Reduction equipment, costing around $492/kW on average.

If retired early, such a plant may be subject to cost recovery risks because investment decisions were made based on the plant’s remaining full lifetime. Across the country, unrecovered coal investments amount to over $100 billion.

However, over the past decade, utilities successfully proposed to recover more than $5 billion of undepreciated costs through existing regulatory tools (such as regulatory asset and accelerated depreciation) as well as the repurposed securitization mechanism.

Plants that installed major control equipment

recent regulatory treatment for coal retirements

Assess economics of coal plant retirement

Evaluate replacement resources and analyze system reliability impacts

Analyze the trade-offs of different recovery mechanisms

Provide regulatory support for recovery of past investments