Tuesday, 18 April 2017

Markets, not regulation, have cut coal-burn in the US

Written by 
Rate this item
(0 votes)
Levelized cost of electricity in the U.S. Levelized cost of electricity in the U.S.

Falling natural gas and renewable energy prices have altered the fuel mix for power generation over the past ten years. The shift away from coal due to cheaper competing energy sources, not from regulation, yields economic benefits, argues Philip Rossetti, analyst at the American Action Forum.

Levelized cost of electricity is a good indicator for the economics of a certain fuel type (see graph).

“Policies such as lifting the coal moratorium or ending the US Clean Power Plan (CPP) are likely to deliver regional economic benefits to areas where coal is still the most competitive source of electricity.” However, Rossetti believes such policies will not reverse national trends that have contributed to coal’s decline.

The demise of the coal power industry, in his view, is due to four factors: cheap natural gas (thanks to better production methods), improving efficiency of natural gas power plants, increased deployment of renewable energy (partially due to subsidies and partially due to falling unsubsidized costs), and to a lesser extent regulations on coal production and electricity use.

Regulation, though much-discussed, can only explain this trend for recent years – market conditions, in fact, have led to the decline in coal-fired power generation.

Any policy intervention in favour of coal markets, beyond lifting restrictions or reforming subsidies, is “ill advised,” Rossetti stressed, arguing that such action “would distort markets and forego potential economic benefits from falling natural gas and renewable energy prices.”

Valid explanations for the decline of coal-burn for power generation in the US are highly competitive natural gas prices, renewable energy subsidies, falling solar costs, and an anticipation of carbon constraints within the lifetime of new power plants. By contrast, more stringent regulations are a recent phenomenon and only a partial explanation for market trends.

Read 619 times

Leave a comment

Make sure you enter all the required information, indicated by an asterisk (*). HTML code is not allowed.