The Trump administration is working to lift regulations on coal-fired power plants in the hopes of making its energy less expensive. But while cost is one important aspect, utilities have a lot more to consider when they choose their power sources.
Different technologies play different roles in the power system. Some sources, like nuclear energy, are reliable but inflexible. Other sources, like oil, are flexible but expensive and polluting.
How utilities choose which power source to invest in depends in large part on two key aspects: price and reliability.
Power prices
One way to compare power sources is by their levelized cost of electricity. This shows how much it costs to produce one unit of electricity on average over the life of the generator.
The asset management firm Lazard has produced levelized cost of electricity calculations for the major U.S. electricity sources annually for years, and it has tracked a sharp decline in solar power costs in particular.
Coal is one of the more expensive technologies for utilities today, making it less competitive compared with solar, wind and natural gas, by Lazard’s calculations. Only nuclear, offshore wind and “peaker” plants, which are used only during periods of high electricity demand, are more expensive.
Land-based wind and solar power have the lowest estimated costs, far below what consumers are paying for electricity today. The National Renewable Energy Lab has found similar levelized costs for renewable energy, though its estimates for nuclear are lower than Lazard’s.
Upfront costs are also important and can make the difference for whether new power projects can be built, as the East Coast has seen lately.
Several offshore wind farms planned along the Northeast were canceled in recent years as costs rose due to inflation and supply chain problems during the pandemic. Construction costs for the two newest nuclear generators built in the U.S. also rose considerably as the projects, both in the Southeast, faced delays.
Reliability and flexibility matter
But cost is not the whole story. Utilities must balance a number of criteria when investing in power sources.
Most important is matching supply and demand at every moment of the day. Due to the technical characteristics of electricity and how it flows, if the supply of electricity is even a little bit lower than the demand, that can trigger a blackout. This means power companies and consumers need generation that can ramp down when demand is low and ramp up when demand is high.
Since wind and solar generation depend on the wind blowing and the sun shining, these sources must be combined with other types of generation or with storage, such as batteries, to ensure the power grid has exactly as much power as it needs at all times.
Irfan Khan / Los Angeles Times via Getty Images
Nuclear and coal are predictable and run reliably, but they are inflexible – they take time to ramp up and down, and doing so is expensive. Steam turbines are simply not built for flexibility. The multiple days it took to shut down Japan’s Fukushima Daiichi Nuclear Power Plant after an earthquake and tsunami damaged its backup power sources in 2011 illustrated the challenges and safety issues related to ramping down nuclear plants.
That means coal and nuclear aren’t as helpful on those hot summer days when utilities need a quick power increase to keep air conditioners running. These peaks may only happen a few days a year, but keeping the power on is crucial for human health and the economy.
In today’s energy system, the most flexible generation sources are natural gas and hydro. They can quickly adjust to meet changing electricity demand without the safety and cost concerns of coal and nuclear. Hydro can ramp in minutes but can only be built where large dams are feasible. The most cost-effective natural gas technology can ramp up within hours.
The big picture, by power source
Over the past two decades, natural gas use has risen quickly to overtake coal as the most common fuel for generating electricity in the U.S. The boom was largely driven by the growing use of fracking technology, which allowed producers to extract gas from rock and lowered the price.
Natural gas’s low price and high flexibility make it an attractive choice. Its rise is a large part of the reason coal use has plummeted.
But natural gas has its challenges. Natural gas requires pipelines to carry it across the country, leading to disruptive construction. As Texas saw during its February 2021 blackouts, natural gas equipment can also fail in extreme cold. And like coal, natural gas is a fossil fuel that releases greenhouse gases during combustion, so it is also helping to cause climate change and contributes to air pollution that can harm human health.
Nuclear power has been gaining interest recently since it does not contribute to climate change or local air pollution. It also provides a steady baseload of power, which is useful for computing centers as their demand does not fluctuate as much as households.
Of course, nuclear has ongoing challenges around the storage of radioactive waste and security concerns, and construction of large nuclear plants takes many years.
Coal is more flexible than nuclear, but far less so than natural gas or hydropower. Most concerning, coal is extremely dirty, emitting more climate-change-causing gases, and far more air pollution than natural gas.
Solar and wind have grown rapidly in recent years due to their falling costs and environmental benefits. According to Lazard, the cost of solar combined with batteries, which would be as flexible as hydropower, is well below the cost of coal with its limited flexibility.
However, wind and solar tend to take up a lot of space, which has led to challenges in local approvals for new sites and transmission lines. In addition, the sheer number of new projects is overwhelming power system operators’ ability to evaluate them, leading to increasing wait times for new generation to come online.
What’s ahead?
Utilities have another consideration: Federal, state and local governments can also influence and sometimes limit utilities’ choices. Tariffs, for example, can increase the cost of critical components for new construction. Permitting and regulations can slow down development. Subsidies can artificially lower costs.
In our view, policies that are done right can help utilities move toward more reliable and cost-effective choices which are also cleaner. Done wrong, they can be costly to the economy and the environment.
Erin Baker receives funding from NSF, DOE, and Sloan Foundation
Paola Pimentel Furlanetto receives funding from NSF and Sloan Foundation
