In February of this year, BloombergBusiness stated that although the Supreme Court had placed a hold on implementation of President Obama's Clean Power Plan (CPP), the Court's stay "won't save coal from a shrinking market." Under the CPP, Bloomberg noted, EPA had projected that coal's share of the electric power mix would shrink to 27% in 2030 (from a 39% share in 2014); but it was already down to 29% in November 2015, a month after the CPP was promulgated.
Coal's shrunken market share has continued in the months since November: over the first six months of 2016, coal accounted for 28% of electric power generation.
Source: U.S. Energy Information Administration. Figure created by CRS.
As coal-fired power plants have retired, or been used less often, much of the slack has been picked up by natural gas. As shown in Figure 1, natural gas surpassed coal as the leading source of energy for electric power generation in the first six months of this year. It accounted for 34% of electric generation during the period, up from 25% in the comparable period of 2014; 2016 looks likely to be the first full year in which natural gas will surpass coal as the leading source of electricity generation in the United States.
The abundance of natural gas, much of it produced by fracking, has driven gas prices to less than half of EPA's projected values for much of the last year, and has made natural gas-fueled power plants cheaper to operate than coal-fired units. A pleasant side effect for consumers is that the price of electricity in most areas has declined as gas has replaced coal: the national average price of electric power in June 2016 (latest available) was 1% below that in June 2015, and 2.1% below that in June 2014.
Over the past few years, many EPA critics have predicted a "train wreck" of higher prices and less reliable electricity as coal plants were retired—a development that many tied to the implementation of new EPA and state environmental regulations. (See CRS Report R41914, EPA's Regulation of Coal-Fired Power: Is a "Train Wreck" Coming?) But, thus far, market developments have made a shambles of most such predictions. Coal-fired power has declined from about 50% of total generation in 2007 to the current 28% with little noticeable impact on reliability, and no real (inflation-adjusted) increase in the national price of power.
As coal use by the nation's electric power producers has declined, the low price and resulting increase of natural gas-fired generation have not been the only factors at work filling coal's shoes. Renewable power, stimulated by state-level requirements (such as Renewable Portfolio Standards) and federal tax credits, has been one factor. Even more importantly, the shoes themselves have gotten smaller.
U.S. Energy Information Administration data show the relative contributions of each factor. Compared to the comparable period of 2014, coal use produced 253 million fewer megawatt-hours (MWh) of electricity in the first six months of 2016. Natural gas picked up 146 million MWh (58%) of the slack.
What happened to the rest? One important factor was that consumption of electricity declined by 62 million MWh—nearly 25% of the gap left by less coal use. For the last decade, electricity consumption has remained relatively flat, breaking a century-long trend in which economic growth and electricity consumption increased in lockstep. Electricity consumption peaked in 2007: since then, as shown in Figure 2, the economy, as measured by the real (inflation-adjusted) Gross Domestic Product, has grown by 11.4%; but electric power use is 2.9% below the 2007 level.
The other important factor is the growth of renewable sources of power: these increased by 35 million MWh in the first half of 2016, as compared to the comparable months of 2014, 14% of the gap left by coal.
Sources: U.S. Department of Commerce, Bureau of Economic Analysis (GDP); U.S. Energy Information Administration (electricity consumption). Figure created by CRS.
The Clean Power Plan (CPP), mentioned at the outset of this Insight, set goals for reducing greenhouse gas (GHG) emissions from existing power plants. EPA modeling projected reductions of about 30% in these GHG emissions by 2030, largely through the substitution of natural gas and renewable sources for existing coal-fired power and energy efficiency improvements.
Many of the changes EPA hoped to stimulate through this regulation have occurred in the single year since its promulgation—and despite the Supreme Court's unusual step of staying the regulation even before challenges to it were heard by a lower court. This raises an interesting set of questions for EPA, the courts, and Congress going forward. One, given the electric power sector's apparently smooth transition to cleaner power sources, is whether the CPP targets can and should be made more stringent. For now, EPA is defending its existing regulations in court from challenges by more than 100 parties, a process not likely to be complete before 2018. But win or lose in court, EPA and the dozen or so states that have begun regulation of GHG emissions will be looking at next steps. The electric power industry is the largest single source of GHG emissions, and there is a widespread assumption within the industry and outside it that further reductions will be expected from it.
On the other hand, since late spring of this year, natural gas prices have increased by about $1.00 per thousand cubic feet (mcf). Prices are still low compared to EPA and other projections, but the Energy Information Administration noted in late August that for the first time in 18 months, the cost of generating electricity using natural gas exceeded the cost of using coal. Whether this will modify the recent industry trends will bear watching.