79 percent of US coal fleet is uncompetitive compared with renewables and storage already. US could save $10 billion annually with the shift. Reinvestment needed in coal communities too.

How to Retire Early: Making Accelerated Coal Phaseout Feasible and Just

June 30, 2020  |  By Paul Bodnar, Tamara Grbusic, Sam Mardell, Caroline Ott, and Uday Varadarajan

For over a century, growing presence of coal smokestacks worldwide signified economic development and progress. Coal supplied our homes with electricity and our factories with power. At the same time, this workhorse of the industrial era caused serious harm to our health and the environment. Today, the costs of continuing to operate coal-fired power plants include not only its health and environmental impacts, but also a hit to the wallets of consumers who are paying more for coal power than they would for renewables.

In a new report, Rocky Mountain Institute, the Carbon Tracker Initiative, and the Sierra Club present an analysis of nearly 2,500 coal plants around the world. This analysis shows that the cost of clean energy has fallen so far that new renewables outcompete new coal virtually everywhere. Furthermore, it is cheaper today to build new renewable energy capacity including battery storage than to continue operating 39 percent of the world’s existing coal capacity. And the competitiveness of coal is sinking rapidly elsewhere.

The Cost of Coal

Continuing to run uncompetitive coal plants comes at a cost to consumers and taxpayers. If we were to phase out the share of existing global capacity already uncompetitive with new renewables, we would save $39 billion in 2020. In just five years, 73 percent of the global coal fleet will be uncompetitive with new renewables plus storage, equating to a savings of $141 billion in 2025.

Though global numbers inevitably mask regional variation, our findings hold true across a diverse set of geographies. The United States could help customers save up to $10 billion annually if 79 percent of its currently uncompetitive fleet were phased out today. In other large coal power regions—Europe, China, and India—the percentage of uncompetitive coal plants is rising fast and will average over 90 percent by 2025. Savings for these three regions combined start at $30 billion per year in 2020 and more than quadruple to $136 billion per year in 2025. In a group of other developing economies with aggregate coal capacity similar to that of the United States, 51 percent of the existing coal fleet will become uncompetitive with new renewables plus storage by 2026.

How to Transition

Immediately retiring and replacing uncompetitive coal assets should be a foregone conclusion. However, long-term contracts and noncompetitive tariffs insulate 93 percent of global coal capacity from market competition with cheaper and cleaner renewables. To keep the Paris Agreement’s temperature targets within reach, global coal use must decline by 80 percent below 2010 levels by 2030. This will require rapid transition in OECD countries over the next decade and phase-out in the rest of the world by 2040—long before many of these long-term contracts expire and/or coal plant investors have been fully repaid.

What can be done? Governments and public finance institutions can accelerate coal phaseout for assets with legacy contracts or tariffs through an integrated three-part approach:

  • Refinance to fund the coal transition and save customers money on day one;
  • Reinvest in clean energy; and
  • Provide transition financing for workers and communities.

Our report describes several innovative financial approaches such as ratepayer backed securitization and debt forgiveness via reverse auctions that capture all three elements of the transition. These financing solutions are incentive-based and can be structured as voluntary programs for both governments and asset owners. As such, they can help establish common ground among many stakeholders without precluding complementary policy and regulatory approaches.

Where new renewables plus storage already outcompetes existing coal, the three-part coal phaseout can be achieved without public subsidies. However, in places where coal is still competitive, public subsidy may be needed in the short term to accelerate action. In such cases, governments and public finance institutions—green banks, multilateral and national development banks, and development finance institutions—could create financing packages for three-part coal phaseout as part of their development and climate priorities.

What comes next?

By 2025, simply operating nearly three-quarters of the global coal fleet will be more expensive than building brand new renewables and storage. So in 2025, the question is not whether renewables will replace the global coal fleet, but when. And these transitions take time to get right. If we want to stay on track to avert the most disastrous impacts of climate change, and save money while doing so, the time to start is now.

Download How to Retire Early: Making Accelerated Coal Phaseout Feasible and Just

A Call for Massive Reinvestment Aims to Reverse Coal Country’s Rapid Decline: Targets devastated communities from Virginia to Arizona. “There is a debt to be paid,” said one proponent.

James Bruggers, Climate Home News, JUN 30, 2020

Solar panels at the Lynch, Kentucky, water plant, on an old massive coal mine site in Harlan County. This is one example of the kind of economic transition identified in a new roadmap for economic transition in coal communities across the United States. Credit: James Bruggers

The global coronavirus that’s put tens of millions of Americans out of work and plunged the nation into a recession is speeding an ongoing transition away from coal.

With devastation in communities left behind, 80 local, regional and national organizations on Monday rolled out a National Economic Transition Platform to support struggling coal mining cities and towns, some facing severe poverty, in Appalachia, the Illinois Basin, Montana, Wyoming, Arizona and elsewhere.

Although it comes just four months before the presidential election in November, the platform doesn’t mention the Green New Deal, the proposed massive shift in federal spending to create jobs and hasten a transition to clean energy that’s divided Republicans and Democrats. 

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But Heidi Binko, executive director of the Just Transition Fund, which drafted by the plan with a wide range of partners, including labor unions, community organizations, business groups and environmental and tribal nonprofits, said it could be used as a template for part of the Green New Deal or any other legislative initiatives aimed at helping coal communities.

While some of the sponsors haven’t endorsed the Democrats’ manifesto for a new economy based on clean energy, all of them are united in the principles of community-based economic development for coal country, Binko said. 

The Green New Deal, introduced in Congress last year by Rep. Alexandria Ocasio-Cortez of New York and Sen. Edward Markey of Massachusetts, calls for net-zero greenhouse gas emissions by 2050 “through a fair and just transition for all communities and workers.” It does not include specific provisions for retraining out-of-work coal miners or reinvesting in struggling coal communities. 

Last year, the Appalachian Regional Commission identified 80 counties across its area as economically distressed—meaning they rank among the most impoverished 10 percent of counties in the nation.

During a telephone news conference Monday introducing the sweeping program for economic revitalization of the nation’s coal regions, speakers from Appalachia to the Navajo Nation described the need for bottom-up economic development that builds on community members’ strengths and resources. 

The main point in putting forth the platform is that communities that have relied on coal need far more help than they’ve been getting, said Just Transition’s Binko. The fund was created in 2015 by several philanthropic foundations and the Appalachian Funders Network to help communities redefine their local economies.

Binko said the platform is based on what has already been shown to work and lacks only the funding needed to scale up efforts well beyond President Obama’s proposed Power Plus plan, a $1 billion economic development fund tied to cleaning up abandoned mines. Congress funded a more limited program.

“The coal economy didn’t create lasting economic opportunity,” said Peter Hille, president of the Mountain Association for Community and Economic Development (MACED), a nonprofit that serves counties in the eastern Kentucky coalfield, who helped draft the new plan. Workers and communities that produced coal for generations “sacrificed their lives, water, health and ecosystems,” he said. “There is a debt to be paid.”

Hille said MACED in Kentucky, for example, has had success helping to finance solar power installations that save residents and businesses money, while creating new jobs.

Brandon Dennison, the CEO of West Virginia’s Coalfield Development Corporation, said his organization has helped launch sustainable agriculture businesses.

The new coal transition platform also highlighted how Navajo communities and local entrepreneurs near the recently closed Navajo Generating Station in northern Arizona are creating clean-energy and sustainable tourism enterprises.

It calls for investing in local leadership to lead the transition—especially Black, brown, women and indigenous-led organizations. The plan stresses support for small businesses and payments for workers while transitioning to family-sustaining jobs. 

And it calls for reclamation and reuse of coal sites and new community infrastructure, including public health facilities and schools. Coal companies, under the plan, would be held accountable during bankruptcies.

“Coal plant closures are changing regions and ways of life too rapidly for small communities to adapt on their own,” said James Slevin, president of the Utility Workers Union of America, AFL-CIO, during the press conference. The AFL-CIO has endorsed Joe Biden for president.

When coal-fired power plants shut down, local governments can find themselves losing millions of dollars in annual tax revenues, he said.

“This (plan) offers lawmakers and leaders a community-driven guide,” he said.