A wave of coal and potential nuclear retirements has prompted extensive political controversy over the future of “baseload” power plants and the effects such retirements could have on the reliability and affordability of the bulk electric-transmission system. Some contend that, as some baseload natural-gas plants also are unprofitable, “all traditional baseload generation sources are at risk.”
At the same time, market forces have driven a massive amount of new gas capacity, while public policy continues to provide the largest tail wind to the expansion of renewables. Renewables and natural gas now meet half of domestic electricity demand, compared to 38 percent in 2011.
The causes and consequences of baseload retirements have significant policy implications. In April, the U.S. Energy Department announced an abbreviated review of baseload retirements, with particular attention focused on the role played by policies that promote renewable energy. The overwhelming evidence from independent studies, monitors of wholesale electricity markets and other industry experts reveals that market fundamentals are the largest driver of coal, nuclear and gas retirements, but regulations and preferential policies also play significant roles. The most important question is whether monopoly-utility planning and competitive electricity markets have facilitated efficient and reliable investment decisions (e.g., proper incentives to build, upgrade or retire power plants) amid dynamic economic conditions.
Image by Anders Riishede