Electric utilities across the country are moving quickly to retire coal-fired generation and add renewable generation. But the burning (or in the winter, chilling) question is what happens to reliability? Like a middle school math problem, will the renewable generation train accelerate fast enough to catch the decelerating coal generation train before it falls off the cliff where existing reserve margins are depleted? A recent report from the Midwestern Independent System Operator (MISO) indicates that the renewable train is not accelerating sufficiently in much of the American Midwest.1
Specifically, from 2021 to 2022 capacity in the MISO’s north central zones (which include the heart of the central and upper Midwest) fell by 3.2 Gigawatts (GW). The drop since 2018 has been approximately 10 GW. MISO reports that the most recent drop was due almost entirely to coal retirements. Electric load, however, continued its post-COVID rebound.
The MISO report focused on the 2022-2023 recent planning resource auction (PRAs) where need and scarcity set the price for available electric generating capacity. The recent PRA resulted in a market clearing price in the resource-limited North Central Regions of $236.22 per megawatt (MW) day. That was 822% higher than in the South Region (including Louisiana and East Texas) which has seen less disruption due to coal retirements and achieved MW day capacity costs of only $2.88. A year ago, the price in the North Central region was only $5.00.
The North Central region includes parts of Illinois, Indiana, Michigan, Minnesota, Iowa, Wisconsin and North Dakota and to date has relied heavily on coal, nuclear, oil and natural gas for its energy supply. While the region has seen substantial additions of onshore wind and solar, it has not been sufficient capacity to make up for the retirement of co-fired generation units in the area.
While market design issues can be fixed, coal retirement decisions are being driven as much by ESG commitments and societal pressures as by hard economic calculations.
MISO does not believe the result is catastrophic. It reported only “a slightly increased risk of needing to implement temporary controlled load sheds,” (read: rolling blackouts). And as reported by Utility Dive,2 the market monitor for MISO sees these results as largely resulting from problems in the design of capacity markets, which have improperly incentivized the early retirement of otherwise economically viable resources.
True enough. But while market design issues can be fixed, coal retirement decisions are being driven as much by ESG commitments and societal pressures as by hard economic calculations. Market design changes may have a limited impact on these decisions.
On the other side of the balance, the options for replacing coal in the region are limited. As MISO pointed out, its system has been adding renewable resources at a steady clip in recent years. But much of that capacity has been solar and onshore wind capacity which contributes less to system reliability than raw numbers would indicate because they are highly dependent on uncertain weather conditions. MISO counts only 15% of nameplate solar capacity as reliable for meeting customer demands in extreme weather or demand conditions and only 50% of wind capacity. And that difference is driving much of the reliability gap.
The more dependable generation options for replacing coal are renewables plus battery storage, offshore wind in the Great Lakes or natural gas peakers. The first is expensive, the second is has seen environmental and aesthetic push back, and the third involves continued carbon emissions (albeit at about half the rate of coal) and pipelines to deliver the gas both of which are controversial. Until technological advances reduce the cost of batteries, provide low cost hydrogen fuel in bulk or support new carbon capture, renewables will be fighting the drag of their lower contribution to reliable capacity reserves as they seek to cover the gap created by coal retirements.