Reinvesting at Coal Plant Sites with Clean Energy Upgrades Supports both Reliability and Affordability

Utilities can use economic dispatch and clean repowering to transition away from coal, maximizing reliability and cost savings for customers while continuing to support energy communities.

Coal’s role in the power sector has been declining for years:  the aging coal fleet is increasingly unreliable and expensive to operate — creating billions of dollars in losses for ratepayers annually — and lower cost sources of power have grown exponentially to take its place.

From an operations and planning perspective, transitioning away from coal requires proactive action to minimize the risk of disruptions that could stem from turning these legacy generators off overnight. Notably, utilities, states, and regional grid operators all do thorough analyses today to ensure that planned retirements will not negatively impact the grid and will provide cost benefits for customers. As such, forcing retiring coal to support grid reliability is incredibly costly and burdensome for customers, with minimal reliability benefit.

For coal plants without imminent retirement dates, one way that utilities can make a smooth transition away from coal — in a way that benefits ratepayers and communities and avoids reliability cliffs — includes pairing economic dispatch and clean repowering. In other words, utilities can operate coal less often and more flexibly, and by doing so make room for low-cost replacement power to quickly support the grid.

By pairing economic dispatch (operating power plants only when they are needed and profitable) and clean repowering processes (connecting new clean energy resources to the grid using an existing power plant’s interconnection point), utilities can avoid unnecessarily relying on uneconomic generators and instead begin reinvesting in communities to support long-term economic resilience.

Our roadmap for smoothly transitioning away from coal in this way includes the following steps:

1. Operate coal plants economically and more flexibly.
2. Utilize spare capacity enabled by economic dispatch to bring new resources online quickly.
3. Retire remaining coal assets and take additional steps to ensure a just transition for coal communities.

Step 1: Operate coal plants economically and more flexibly

First, utilities can operate coal plants more economically and flexibly today. There are fewer and fewer times of the year in which coal plants can provide energy at lower cost than other existing energy sources. And yet many utilities still turn coal plants on and leave them running for weeks and even months at a time when cheaper resources are available — a known driver of the affordability crisis facing customers today.

Instead, utilities can operate their coal plants only when needed by pursuing economic dispatch and additional operational efficiencies. Economic dispatch can be pursued overnight; all utilities have to do is be responsive to market prices and turn off their coal plants when economics dictate it. In fact, merchant coal plants, whose owners do not have ratepayers, almost exclusively operate this way.

Additional changes in unit dispatch that can increase flexibility and reduce uneconomic operations include:

• Putting units on standby instead of running at their minimums, which provides additional ramping capabilities (both up and down);
• Negotiating fuel and power contract obligations so utilities are not purchasing more coal than needed or operating more than is economic; and
• Pursuing other engineering optimizations that can lower minimum operating levels, minimum run times, and/or increase plant-level ramp rates (both up and down), and can support reliability and lower losses incurred while operating the plant.

For example, Southwestern Public Service Company, a utility operating in New Mexico and Texas, pursued numerous operational efficiencies at its coal plants (including renegotiating coal contracts, modifying plant testing parameters, and additional engineering optimizations) that reduced minimum operating levels by 23–32 percent and lowered how long its coal plants need to run before turning off. Minnesota Power, a Minnesota-based utility, was also able to reduce the operating minimum at one of its coal-fired units at Boswell Energy Center by 57 percent.

Step 2 (if needed): Utilize spare capacity enabled by economic dispatch to bring new resources online quickly

Utilities that operate their coal plants less often and with more flexibility can open up substantial headroom (additional capacity the grid can handle without needing to install new equipment) on the transmission system for new low-cost energy resources. In 2023 and 2024, US coal plants had an average capacity factor near 40 percent — meaning that the average coal plant was not utilizing 60 percent of the transmission capacity allocated to it. Further economic operations would undoubtedly increase this available headroom.

Fortunately, the process known as surplus interconnection allows utilities to leverage extra transmission headroom and existing infrastructure to quickly connect new energy resources to the grid. Nationwide, the surplus interconnection opportunity is large, and by taking advantage of this opportunity, utilities can get cost-effective clean energy resources connected to the grid quickly — often in less than a year. These resources can directly displace the energy output and reliability services that coal plants have historically provided and rapidly decrease customer bills. Having replacement resources already online can make the decision to fully decommission a coal plant even easier.

Because the surplus interconnection process requires replacement resources to connect to the grid near the existing coal plant, it has the potential to support energy communities with local jobs, revenue, and economic diversification and resilience. Utilities will need to renew or transfer interconnection agreements for generators added via surplus interconnection when the entirety of the coal plant they are linked to retires, but with proactive planning and ongoing interconnection queue reforms, this need not become a major hurdle.

Utilities and regulators may also find that coal plants are no longer economic to operate at all, especially compared to building new clean energy resources, suggesting that utilities should move toward full decommissioning and replacement of the plant rather than the interim step of surplus interconnection. This is the case for most coal plants today. Fortunately, many regions also have a generator replacement process that can provide the same reliability, affordability, and energy community benefits as surplus interconnection service.

Step 3: Retire remaining coal assets and take additional steps to ensure a just transition for coal communities.

At this point, the transition to economic dispatch and additions of surplus energy resources to the grid have created immediate cost savings for customers, minimized the risk of reliability cliffs upon coal retirement, and supported coal communities early in the transition away from coal. What’s left now for utilities is to retire their remaining coal assets and continue remediation efforts that ensure near-term stability and long-term community benefits well after closure of coal plants.

Action Plan

Utilities can pursue this path away from coal today, and regulators can ensure utilities are doing so to benefit customers. To enable this transition away from coal, regulators can:

• Investigate and require economic dispatch at coal plants. Regulators can investigate how utilities are currently operating their coal plants and ensure that utilities are not over-relying on coal at customers’ expense. Regulators in Minnesota have continued to investigate the impact of uneconomic coal dispatch on customers, and regulators in Michigan and Louisiana have recently taken action to ensure customers are not overburdened by uneconomic coal operations.
• Require utilities to evaluate surplus interconnection potential at their coal plants and share surplus opportunities with developers. Today, surplus interconnection service is available for nearly all utilities across the United States, and yet few evaluate the potential for surplus interconnection opportunities in resource planning and procurement. Evaluating surplus interconnection opportunities in resource planning and sharing opportunities in competitive resource solicitations can enable new power to get online quickly, minimize costs for customers, and enable continued investment in coal communities. The same opportunity exists for many other thermal power plants today, most of which have significant unused headroom that can be filled by new resources using surplus interconnection service.
• Ensure utilities are proactively planning to transfer or apply for new interconnection agreements as legacy plants retire and surplus resources remain. Eliminating this bottleneck can provide certainty that the process outlined above will function as planned.

Relying on coal for reliability is an unnecessary and costly solution for customers. With proper planning and utilizing procedures available today, utilities can enable a smoother transition away from coal, maintain a reliable and affordable grid for customers, and reinvest in energy communities — wins across the board.