Coal, Executive Insight, Generation, Renewable Energy, Wind

Utilities adding low cost wind power, leaving inefficient coal plants at risk

Bolstered by dramatic cost declines for renewables, utilities are increasingly looking to wind power to expand their rate bases or replace aging, inefficient coal-fired power plants, according to a new report from Moody’s Investors Service.

According to the report, new low-cost wind power resources could lead to a trend of earlier retirements for regulated coal plants in the Great Plains region.

“Wind power economics are driving coal generation up the dispatch curve and into earlier retirement,” says Jairo Chung, a Moody’s analyst. “Around 56 gigawatts of regulated coal-fired capacity in the Midwest has operating costs that are higher than the all-in costs of new wind power.”

In the Great Plains states, the average long-term all-in power purchase agreement price for wind power is around $20/MWh. On a comparable basis, the majority of the coal-fired power generation in the same region has operating costs higher than $30/MWh.

Favorable pricing and wind resources have allowed utilities in states like Iowa (Aaa stable) and Kansas (Aa2 negative) to invest in their rate bases, leading to higher earnings for investors, lower rates for customers and a cleaner energy portfolio.

“It’s a potential ‘win-win-win’ for the parties involved,” says Chung.

Other states including Minnesota and Colorado have strong renewable portfolio standard mandates to motivate utilities to increase renewable investments while retiring coal assets.

The economics of wind power have allowed these states to target even more aggressive environmental standards.

As coal-fired plants are retired and replaced prior to the end of their useful lives, Moody’s believes regulators will allow recovery to mitigate “stranded asset” risk for utilities that operate vulnerable assets. Any additional coal-fired plant retirements would be phased in, and utilities will be able to mitigate the associated risks over time.