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Avoiding a Train Wreck: Replacing Old Coal Plants with Energy Efficiency


August 22, 2011

White Paper

Authors:

R. Neal Elliott, Rachel Gold,and Sara Hayes

Description:

Changes in fossil fuel markets and updates to environmental regulations may result in the retirement of existing coal-fired electric power plants, putting on the order of 40,000 megawatts of generation at risk of retirement. This capacity is primarily located in the Ohio Valley, Upper Midwest, Mid-Atlantic, and Southeast. The investments required for replacing or upgrading these plants would raise electricity rates for all customers.

Customer-side investments in energy efficiency and combined heat and power can replace this capacity at a lower cost, reducing customer rate impacts. Energy efficiency investments by large energy consumers, particularly manufacturing firms, should be the target. Many manufacturing firms are poised to make major new capital capacity investments as the economy recovers and demand for manufactured products increases. These investments would modernize manufacturing, generating local job creation and enhanced environmental compliance for the facilities.

Current utility regulatory and business models do not encourage utilities to make these customer-side investments.  A new utility regulatory business model will be needed to encourage utilities to shift a large portion of their investments from the supply-side to the demand-side. Utilities will need to invest ratepayer funds in the demand-side projects and be allowed to earn a preferred return on these investments. If these policies are put in place, customers will benefit from lower electricity rates and a more vibrant local economy with more jobs, while electricity utilities will be motivated to become energy efficiency suppliers, not just electricity suppliers.