To reach clean energy goals, Democrats offer to help utilities retire coal plants faster

Democrats in Congress are looking to help utilities pay off outstanding debt on coal-fired power plants to help them retire faster to meet aggressive greenhouse gas emissions reduction targets.

Some Republican-led states such as Indiana, Missouri, and Kansas have passed state-level laws this year to make it easier for owners of coal plants to restructure their debt.

The process, known as coal debt securitization, is like refinancing a mortgage, and it's being embraced by utilities to help them avoid rate increases on customers as they look to transition off coal for economic and environmental reasons. With approval from state regulators, utilities can arrange for the outstanding debt on coal plants to be sold as bonds that are then repaid by customers' monthly electricity payments.

The bonds, issued at low-interest rates, would cost customers much less than they would pay if the utility were still paying off the outstanding coal plant debt.

Now, House Democrats seek to expand these efforts as part of their $3.5 trillion reconciliation social and climate spending package by including provisions that essentially act as a federal version of coal debt securitization. "We have had a lot of focus on reducing the cost of deploying clean energy," said Ben Serrurier, the manager of carbon-free electricity at RMI, an environmental group. "We need to keep doing that. But we are recognizing the need to support communities through this transition and deal with the fact we have long-lived undepreciated fossil fuel assets that are uneconomic, and we're not actually removing those. We need to get creative with financing mechanisms."

Coal-fired power plants are closing rapidly, primarily for economic reasons due to competition from cheaper natural gas and renewables. But many remaining coal plants, despite being unprofitable, are scheduled to be operational for decades as utilities prolong their life by installing environmental control technology to comply with pollution regulations.

That means the cost of retiring a gigawatt of coal today is more than twice what it was in 2005, according to research by RMI. Today, 80% of coal generation in the United States has no retirement date or is scheduled to retire after 2030. The book value of these assets, which are concentrated in just a handful of states, totals $129 billion.

These investments, approved by utility regulators, will need to be repaid by their customers, on top of the cost of the additional investment needed for the transition to lower-carbon energy sources. "Independent of any policy, clean energy transitions are happening, and you have to deal with the issue of costs," said Ashok Gupta, a senior energy economist at the Natural Resources Defense Council. "If the new stuff wasn't less expensive than the old stuff, this financing tool wouldn't be a thing to go to. The main reason to do this is to help lower costs to consumers."

To meet their climate goals, Democrats would have to find a way to make it cheaper for utilities to shut down uneconomic coal plants faster without imposing pain on consumers, who would bear higher costs if utilities can't recover their investments.

Democrats' reconciliation spending package aims to generate 80% of electricity from clean sources by 2030. That target would be met by imposing a "clean electricity performance program" to pay utilities to generate more clean electricity while penalizing companies that fail to do so.

Achieving such a goal would mean there is hardly, if any, coal left in the electricity system. "In the big picture, the CEPP is trying to create a structure for utilities to transition and to move it along — to get utilities from walk to run," Serrurier said. "But it may be hard for you to run because you have a heavyweight [long-term debt] on your ankles. If we can lower the cost of shedding uneconomic plants, it gives ratepayers and the utility more room to move faster and maneuver toward the transition."

House Democrats seek to achieve this through two primary avenues.

The House Energy and Commerce Committee's portion of the reconciliation spending package allocates $2 billion for an "Energy Community Reinvestment Financing" program implemented through the Energy Department's Loan Programs Office.

That office is currently used to help commercialize new clean energy technologies. Still, Democrats would also authorize it to take on another role of providing financial support to help utilities retire fossil fuel infrastructure.

Utilities could apply to refinance unrecovered investments in coal plants using low-cost debt, including direct loans, letters of credit, and loan guarantees.

The Agriculture Committee's section of the reconciliation bill provides $9.7 billion to help electric co-ops pay off debt on coal plants, many of which were funded through loans from the Department of Agriculture's Rural Utilities Service.

The shift to clean energy is happening more slowly at co-ops that service much of rural America since many are often locked into long-term contracts with coal plants. Gupta said co-ops are ineligible for using state-level coal debt securitization because state utility commissions do not regulate them. Serrurier and Gupta said programs like these should not be viewed as a "bailout" to make utilities whole from bad investments in coal plants. "Utilities will say they got approvals to make these investments so they feel they should have an opportunity to recover those costs," Gupta said. "How do we make the transition happen a little faster and smoother at a lower cost to consumers?"

Original Location: To reach clean energy goals, Democrats offer to help utilities retire coal plants faster


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