Just last summer, Northern Indiana Public Service Co. planned to retire two of its five remaining coal-fired power plants by 2023. Now, it plans to do away with all of them over the next decade, and buy more solar and wind power instead.
The Midwestern utility’s decision is part of a broader shift among American utilities -- including Colorado's largest, Xcel Energy Inc. -- toward less costly energy sources.
The companies are accelerating the closure of coal plants, as wind and solar power become more economical alternatives, aided by federal subsidies, and natural gas continues to be a cheap fuel for electricity in the U.S., thanks to the shale-drilling boom.
Northern Indiana Public Service, part of NiSource Inc., concluded that phasing out coal sooner was worth it because it would move the company to what is becoming a cheaper source of power, and ultimately reduce costs for its 470,000 customers by as much as $4 billion over 30 years.
The transition would require raising average rates by a proposed $11 a month starting later this year, because of higher short-term costs associated with closing the plants, but the company expects the shift would reduce its overall generation costs starting in 2023.
“We’ll continue to see renewables and other technology become more cost competitive,” said Joe Hamrock, NiSource’s chief executive. “There’s recognition that the market is changing in a fundamental and permanent way.”
The shift is taking place as the Trump administration tries to revive the coal industry by rolling back environmental regulations and easing restrictions on building new plants. Those efforts have done little thus far to curtail the closure of coal plants, which account for the majority of U.S. coal demand.
The Energy Information Administration estimated that domestic coal consumption in 2018 fell to 691 million tons, the lowest level since 1979, and expects it to continue dropping this year.
In Colorado, coal production in the first half of 2018 amounted to 7 million tons, down 13 percent from the same period of 2017, federal Mine Safety and Health Administration data show.
Minneapolis-based Xcel said last month that it plans to shift entirely to 100 percent carbon-free power generation by 2050, becoming the first major U.S. utility to make such a pledge.
The company, which covers parts of Colorado, Minnesota and six other states, says that coal could account for as little of 10% of its power mix by 2030. It was more than one-third of the mix in 2017. Xcel expects lower fuel and production costs will eventually offset some initial rate increases.
Xcel CEO Ben Fowke said improvements in technology have enabled his company to purchase wind and solar power at a fraction of the prices it paid a decade ago. He expects renewables to account for more than half of the company’s power generation by 2024.
“I would never have thought we could have achieved anything near that five or 10 years ago while keeping our prices affordable,” he said.
Last summer, Colorado regulators approved Xcel’s plans to retire two coal units in 2022 and 2025, respectively, with each roughly a decade ahead of schedule.
Xcel plans to replace them with renewable energy and battery storage, a shift the company says will at first be cost-neutral with longer-term benefits. Retiring the units more quickly is likely to reduce Xcel’s costs by as much as $215 million by 2054, the company says.
The moves are leading some experts to step up estimates for the phaseout of coal power in the U.S. In 2017, research firm Wood Mackenzie projected that companies would retire 46 gigawatts of coal-generating capacity by 2027. Last year, it raised that projection to 57 gigawatts.
“Several years ago, even though a company might have wanted to go to renewables, they knew it was going to be expensive,” said Matt Preston, a Wood Mackenzie coal analyst. “It has become clear that the cost is coming down.”
Not all utilities are retiring coal plants faster than expected. The changes vary by region and depend on a number of factors, including proximity to coal mines and wind-producing regions and the age and efficiency of the plants.
Still, coal’s decline has raised concerns among regulators that a rapid shift to natural gas and renewables could come at the expense of power-grid reliability. Coal plants have historically served as generation workhorses, running nonstop to serve demand for power. Wind and solar farms, and some natural-gas plants, run more intermittently.
Within PJM Interconnection, a sprawling power grid and wholesale electricity market that serves 13 states from Virginia to Illinois, coal-fired electricity generation in the first nine months of 2018 fell 5.2% from the same period a year earlier. Natural-gas-fired generation, meanwhile, rose 19 percent during the same period.
Andrew Ott, PJM’s chief executive, said he expects the pace of coal retirements to remain steady in the system. But for the first time last year, PJM did an analysis that included determining where a loss of generation capacity could disrupt the grid. The study found it would take a substantial loss of plants to cause reliability problems, but emphasized the importance of maintaining adequate resources.
“Fuel security is not something we would have looked at in the past,” Ott said.
Northern Indiana Public Service, located within another regional electricity grid, the Midcontinent Independent System Operator, decided to retire four coal units within the next five years and its final one by 2028, after soliciting bids from wholesale power providers last year.
It received 90 proposals for a range of technologies, including wind and solar generation priced at roughly $27 to $40 per megawatt hour. By comparison, the company estimated that continuing to operate its coal fleet would cost between $57 and $82 per megawatt hour.
“We were certainly surprised,” said Hamrock, the CEO of the utility’s parent. “We’re in a very different moment with renewables dramatically more competitive for our customers in our region.”