US electricity customers are unknowingly paying an extra $1 Billion for coal power

According to this interesting study, US Electricity customers in four competitive power markets paid at least $1 billion per year more than they needed to pay for their electricity over each of the last three years because utilities sold them power from their own coal-fired plants instead of from cheaper power sources on the grid.,

https://blog.ucsusa.org/joseph-daniel/the-coal-bailout-nobody-is-talking-about?_ga=2.118490505.1024418369.1540903129-2076229930.1539806212

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good for the miners not for consumers............

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Costs $1bn?  Maybe.  When these numbers are quoted, they're usually based on the current price of alternatives.  The important question is, "What would be the cost of electricity without those coal plants?" 

Suppose a world where there are two sources of electricity: coal and natural gas.  The cost of existing coal is $0.04/kWh, the cost of new-build coal is $0.06.  Because of competition between existing plants, the wholesale price of electricity fluctuates somewhere around $0.045. 

Suddenly, new technology is developed and a glut of NG floods the market such that the price of NG drops to $0.03/kWh.  The entire market declares coal dead, builds NG plants as fast as they can, and begins shutting down coal plants.  After some time, enough coal plants shut down that the remaining plants can't replace NG generation.  I.e. there is no longer market competition.  When that happens, whoever sells NG will increase prices until NG is $0.059/kWh: high enough to maximize profit, but low enough to prevent new coal plants from competing.  

In the long run, relying on immediate prices to make long-term decisions raises electricity prices.  This is what markets are currently doing; I don't expect it to play out well for consumers.  

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19 minutes ago, mthebold said:

Costs $1bn?  Maybe.  When these numbers are quoted, they're usually based on the current price of alternatives.  The important question is, "What would be the cost of electricity without those coal plants?" 

Suppose a world where there are two sources of electricity: coal and natural gas.  The cost of existing coal is $0.04/kWh, the cost of new-build coal is $0.06.  Because of competition between existing plants, the wholesale price of electricity fluctuates somewhere around $0.045. 

Suddenly, new technology is developed and a glut of NG floods the market such that the price of NG drops to $0.03/kWh.  The entire market declares coal dead, builds NG plants as fast as they can, and begins shutting down coal plants.  After some time, enough coal plants shut down that the remaining plants can't replace NG generation.  I.e. there is no longer market competition.  When that happens, whoever sells NG will increase prices until NG is $0.059/kWh: high enough to maximize profit, but low enough to prevent new coal plants from competing.  

In the long run, relying on immediate prices to make long-term decisions raises electricity prices.  This is what markets are currently doing; I don't expect it to play out well for consumers.  

Don't worry about that. If they shut down the coal power plants, natural gas will not be left in a monopoly situation. There is also solar and wind energy increasingly competitive to challenge natural gas.

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(edited)

2 hours ago, Guillaume Albasini said:

Don't worry about that. If they shut down the coal power plants, natural gas will not be left in a monopoly situation. There is also solar and wind energy increasingly competitive to challenge natural gas.

Everyone keeps saying that, but I've yet to see it demonstrated in a truly free market. 

E.g. there was a link to record low wind prices in the UK.  53/MWh, I believe, which was close to CCGT.  What wasn't mentioned was that: 

1) The government had to guarantee a constant price for wind production so investors could lower interest rates. That means the public is paying for this wind power whether it's needed or not.
2) The cost didn't account for short-term backup generation.
3) No one has figured out what happens when you get 24+ hours of no wind power.  How much wind can you integrate with that risk looming?
4) No one has addressed how high renewable integration will affect transmission costs. How much can you integrate before the existing grid can't handle it?

So sure, renewable costs are falling - but the numbers are carefully engineered.  I'll believe the hype when someone shows me a completely unsubsidized cost of renewables competing on the same terms and providing the same services as conventional generation.  We haven't achieved that, and no one has presented a map to getting there. 

I would ask this question: if renewables are so competitive, why do their advocates feel the need to engineer numbers? 

I would also ask this question: how much money will NG generators make on a windless day? If the Australian markets are anything to go by, "A hell of a lot." 

Abandon coal at your own risk. 

Edited by mthebold
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