Competitive energy markets, not coal favoritism, are best for Ohio
Ohio’s unprofitable coal plants are not facing premature retirement – they’re facing superior competition. Competitive forces are driving down power prices while maintaining a reliable supply of electricity, much to the delight of Ohio’s residents and businesses.
Some have misdiagnosed the cause of coal’s current troubles, wrongfully concluding that retirements of coal-fired plants will harm consumers and the reliability of the grid. To the contrary, proposals to bail out unprofitable coal plants will raise consumer costs, undermine Ohioans’ power choices and harm the investment climate needed to make a reliable grid possible.
Former President Barack Obama’s Clean Power Plan was a poor remedy for the real problem of global climate change, but it’s not driving coal plant retirements today. The Supreme Court issued a stay of the plan in February 2016, suspending its implementation, and the Trump administration is in the process of rolling it back. The Environmental Protection Agency’s mercury and air toxics rule drove many premature coal plant retirements several years ago. Yet it’s not the major factor going forward, as the power industry has already undertaken the capital expenses to comply with the rule.
Environmental rules and market pressures led to a wave of coal plant retirements this decade in the PJM Interconnection, which is the regional electricity market that includes Ohio. PJM’s independent monitor told the R Street Institute that PJM’s market signals have spurred more than 20,000 megawatts (1,000 megawatts is a large coal plant) of coal plant retirements since 2011, while maintaining a healthy reserve of resources by attracting new, profitable units into the market. Experts at The Brattle Group, a leading consultancy, contend that PJM markets “passed this stress test with surprising robustness and no evident threat to reliability.”
PJM’s market retains resources and attracts new ones that provide grid reliability at the lowest cost. This only works if policymakers allow cheaper new resources to displace more expensive legacy plants. Such creative destruction is an essential element of any marketplace. It is fast at work in electricity markets.
Coal’s financial pressures in the post-Obama era reveal the unmistakable benefits of capitalism. Legacy power plants face immense financial pressure from soft power demand and innovative competition, especially a massive reduction in the costs to generate power from natural gas. Merchants are building highly efficient gas plants where fuel is cheapest and offering into PJM markets at hypercompetitive levels, often well below coal plants.
This is good for business. Industry groups like the Ohio Manufacturers’ Association and principled pro-market groups like the Buckeye Institute actively support electricity markets and consumer choice while resisting subsidies. Industrial groups around the Midwest have eyed the advantageous electricity market structures that Ohio and Illinois wisely adopted, while other states witness the blunders of monopoly utilities.
It takes political discipline to reap the economic rewards of competition. Ohio policymakers should let the marketplace decide the fate of coal plants. Healthy markets support consumer choice, customer savings and innovation. Picking winners and losers has no place in Ohio’s energy future, but empowering markets and resisting subsidies does.
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