The rapid retirement of coal-fired power plants and increasing load from electrification could pose reliability challenges for the US grid, industry observers and coal industry representatives told S&P Global Commodity Insights.

Before 2015, the US had 283 GW of coal-fired power capacity online. By the start of 2024, that amount will have decreased 34% to 186 GW, according to S&P Global Market Intelligence data. Accounting only for power plants with announced retirement dates, 62.1% of the coal-fired generation that existed prior to 2015 will be offline by the start of 2035. Plans to shut down 70.6% of the pre-2015 coal fleet by 2050, a widely viewed international target date for reaching net-zero emissions, are on the books already.

Coal's share of US utility-scale electricity generation plummeted from 38.6% in 2014 to 19.7% in 2022, according to the US Energy Information Administration. And while renewable energy resources are entering the grid at a rapid clip, they may have trouble keeping up with rising demand.

"It's a really tough challenge to shut down all the fossil generation — coal and gas," said Steve Piper, director of energy research for Commodity Insights. "It kind of runs into the dilemma that, on the one hand, we're trying to electrify mobility, then are trying to electrify heating, and there's promising technology to do that, but it all builds load."

Biden administration goals in danger

The Biden administration aims to decarbonize the electricity sector by 2035. The Inflation Reduction Act, passed in 2022, provides incentives to help utilities accelerate the pace of coal plant retirements and increase the build-out of renewable energy.

"It makes clean energy even cheaper than it already is," said Amanda Levin, director of policy analysis in the science office of the Natural Resources Defense Council, a nonprofit environmental advocacy group. "It provides funding and incentives for rural co-ops and other utilities to accelerate the retirement of their coal fleet and invest in new clean energy, but it is going to take additional policy if the administration wants to meet this 100% clean by 2035 goal or to fully retire its coal fleet by 2030 or 2035."

Many upcoming coal retirements will strike in 2025, when plant operators have set shutdown dates for 16.6 GW, and in 2028, when another 19.3 GW of shutdowns are on the calendar. Though operators are likely to set even more capacity for retirement in the future, both years so far are set to overshadow the previous record of modern coal-fired power plant retirements set in 2015, when power generators took 15.1 GW of capacity permanently offline.

But CreditSights analyst Andrew DeVries said that while there is still a long time between now and the Biden administration's carbon-free grid goal, "2023 wasn't a good sign."

"It will be incredibly challenging to hit that target without significant new nuclear plants and offshore wind," DeVries said, citing some failures of long-planned new technologies.

DeVries noted that Utah Associated Municipal Power Systems and NuScale Power Corp. in November cancelled plans to build the first small modular nuclear plant in the US, a blow to a technology expected to enable a rapid expansion of nuclear power. The companies said they could not identify enough owners to take a share of the power from the planned 462-MW Carbon Free Power Project in Idaho.

In addition, Ørsted A/S said Oct. 31 that it ceased developing its 1,100-MW Ocean Wind 1 and 1,148-MW Ocean Wind 2 projects off New Jersey as part of an ongoing review of its US offshore wind portfolio. Though a new offshore wind project in New York went into operation in early December, the decision by Ørsted created significant uncertainty for the eastern grid.

In a Dec. 12 report, the North American Electric Reliability Corp. said portions of the US and Canada will likely face power supply challenges as demand rises and capacity shrinks. Other officials tasked with maintaining grid reliability, including at the Federal Energy Regulatory Commission, have also recently raised concerns about reliability given the pace of the energy transition.

Retirement delays were prevalent in 2022 as reliability concerns and supply chain issues forced US utilities to hold off on planned power plant retirements.

Utility subsidiaries of CenterPoint Energy Inc., Alliant Energy Corp. and WEC Energy Group Inc., all in the Midwest, were among the companies that delayed coal plant retirements to alleviate near-term reliability and cost concerns.

Coal industry concerns

Operators of coal-fired power plants are closely watching an administration working on several fronts to force the shutdown of their facilities, said Michelle Bloodworth, president and CEO of America's Power, a group that lobbies at the federal and state levels on behalf of the US coal fleet. Of particular concern is the US Environmental Protection Agency's carbon rule proposal issued in May that would require existing coal-fired power plants with plans to operate beyond 2040 to capture 90% of their carbon emissions by 2030.

"We need to put reliability first. It doesn't mean that we don't need to try to achieve lower emissions through technology," Bloodworth said. "But, that's going to take time. So to me, setting unrealistic timelines is not the direction to head in."

Concerns about the electricity grid's reliability as coal plants continue to be shuttered may have some power plant owners rethinking approaching closures that are "happening too fast," said Rich Nolan, president and CEO of the National Mining Association, a trade group representing coal miners.

"There are plans, and then there's reality," Nolan said. "What we've seen is some of those plans go right out the window when times get tough."

New commitments and an impending election

The US recently committed to the Powering Past Coal Alliance at the 2023 UN Climate Change Conference in Dubai, United Arab Emirates. It contains few details besides a pledge to "commit to not developing new unabated coal power plants and phasing out existing unabated coal plants."

Still, the agreement sends a message to regulators that the administration wants to accelerate its efforts to cut greenhouse gas emissions, whether by shutting down existing coal fleets or requiring technologies to decrease their emissions.

"It probably gives EPA some more leverage on some of the rules that they're trying to push," Piper said. "Like, yes, you can keep your coal plant, but you've got to strap carbon capture on it or switch to hydrogen, which for the coal mining industry amounts to the same thing as shutting it down."

The declining cost of renewables and federal policies, such as the Inflation Reduction Act, have been key factors supporting the move away from fossil fuels.

"I would say companies across the industry have been very aggressive in retiring coal plants, planning for future coal plant retirements and accelerating those future retirement dates," Scotia Capital (USA) Inc. analyst Andrew Weisel said in an interview.

However, Weisel added that it will take much work for power plant owners to ramp up this transition. Many have already been very aggressive in retiring their coal fleets, but planning, permitting and building replacement technologies presents a challenge.

"If we're talking about a plant that is set to be retired in 2028, it's hard to accelerate that much further, given that we are five years away," Weisel said.

The US presidential election in 2024 also looms over the energy transition.

"If the Republicans take the White House and Congress, I think there's little question that that would slow down the energy transition," Weisel said. "I don't think there's much risk of the [Inflation Reduction Act] being repealed, but I wouldn't be surprised to see it watered down."

S&P Global Commodity Insights and S&P Global Market Intelligence are divisions of S&P Global Inc. S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.