IER Study: Existing Coal Much Less Costly than New Gas, Wind

The Institute for Energy Research (IER) has published a first of a kind study on the levelized cost of electricity from existing power plants. Although not discussed as such, the report corroborates concerns that EPA’s Clean Power Plan would significantly increase electricity prices by replacing low-cost existing coal generation with more costly new generation from natural gas and wind.

How much more costly? The authors, Tom Stacy and George Taylor, estimate that new natural gas combined cycle (NGCC) costs about twice as much as existing coal and new wind costs about three times as much.

The U.S. Energy Information Administration (EIA) periodically compares the levelized cost of electricity (LCOE) of various types of generation sources. EIA defines the LCOE as the per megawatt-hour cost of building and operating a generating plant over its assumed financial life and duty cycle.

EIA’s LCOE estimates are always for new generating sources at some point in the near future. For example, the agency’s latest analysis estimates LCOE for sources that won’t come online until 2020.

Although useful, EIA’s estimates do not reveal the full cost of policies designed to push existing coal power plants into premature retirement and shift generation to new NGCC and renewables.

The IER report presents the missing side of the cost picture — the per megawatt-hour cost of the existing resources that “supply all of our electricity today,” most of which “could continue to supply reliable electricity at the lowest cost for years – even decades to come.”

Stacy and Taylor also adjust (increase) EIA’s LCOE estimates for new sources “to reflect the real-world operating characteristics of different generation resources on the power grid.”

They find that the per megawatt-hour cost of “existing coal ($38.4), nuclear ($29.6), and hydroelectric resources ($34.2) are about one-third of the cost of new wind resources ($112.8) on average.”

Citing an earlier IER study, they caution that “Federal policies alone threaten to shutter 110 gigawatts of coal and nuclear generation capacity.” Likely consequences include higher electric bills and reduced economic efficiency:

Because electricity is an essential input to nearly all goods and services, replacement of operationally sound, least cost electricity producing power plants with new ones that produce electricity at a higher levelized cost comes at a cost which must be borne and allocated across the domestic economy.