On April 14, 2017 Secretary of Energy Rick Perry issued a memorandum directing preparation of a study to examine whether the retirement of many baseload plants (mostly coal-fired) are premature and whether their retirement reduces grid resilience. The Secretary directed the Department of Energy to conduct a rigorous analysis to answer these questions.  The final report is expected in a few weeks, but a draft has been obtained by Reuters.

Major drivers of retirement: High natural gas availability and low electricity demand

Based on an extensive review of the electric power system evolution and events over the past thirty years and analysis of DOE and other data sources using basic supply and demand principles, a preliminary draft of the study concluded that many baseload retirements are not premature because they are consistent with observed market forces, primarily low natural gas prices and lower than expected electricity demand.   Environmental regulations, state policies and competition with renewables are minor factors that have exacerbated and accelerated these trends. Since 2002 most baseload power plant retirements were victims of over capacity and relatively high operating costs that often reflect the age of the plants. The first tranche of fossil fuel retirements occurred before the explosive growth of renewable generation over the past five years.

Costly environmental regulations and subsidized renewable generation have exacerbated and accelerated baseload plant retirements, but these factors played minor roles compared to the long-standing drop in electricity demand relative to expectations and years of low electricity prices driven by high natural gas availability. While coal and nuclear power used to provide the bulk of U.S. electricity, wholesale electricity prices have closely tracked natural gas prices for the past 15 years beginning about the time that shale gas and oil entered the scene. Low natural gas prices and the fact that new, high efficiency natural gas generation and the pipelines required to provide fuel could be built rapidly helped grow natural gas plants relative to coal and nuclear.  Renewables didn’t cause retirements – baseload retirements due to age, inefficiency, and inability to compete began appearing in the early 2000s well before any significant levels of wind and solar generation – but competition with renewables has exacerbated the problem.

Impact on grid reliability

Numerous technical studies for most regions of the nation indicate that significantly higher levels of renewable energy can be integrated without compromising system reliability.                

The study outlines four principal ways to maintain and enhance bulk power system reliability: technology, rules and standards, business practices and last and most expensively, using high levels of transmission and generation.

• Technology advancements now enable wind plants to provide a full spectrum of balancing services. For example, Xcel Energy requires turbines to be on automatic generation control, which allows computerized control system to directly control wind generation output.
• FERC, NERC, and the RTOs and ISOs have undertaken several initiatives to use rules, standards, and grid codes to modify requirements for both interconnectioning renewables and legacy power plants to improve reliability.
• Bonneville Power Administration provides an example of how to integrate wind energy effectively using operational and business practices rather than bringing on more generation reserves. BPA dealt with the reliability risk by limiting the amount of transmission available to the wind fleet (control and curtailment), charging for using hydropower to balance wind generation, and setting a penalty rate to encourage accurate wind generation scheduling.