The Trump Administration is reportedly looking for ways to artificially prop up an economically struggling coal plant in Arizona, but support for the plant might come at the expense of support for affected communities. The Navajo Generating Station (NGS) is one of the largest coal plants in the country and is partially owned by the federal government, which makes it a potential flashpoint in President Trump’s quest to put an end to the alleged “war on coal.” The reality, however, is far more complex than politicized talking points: electricity markets are undergoing a period of rapid, transformational change. Rather than denying the reality of cheap natural gas, falling renewable prices, and rising coal costs, the federal government must help provide a sustainable transition for affected workers and communities—starting with those impacted by a shutdown of Navajo Generating Station.
The Coal Industry is Facing Significant Economic Pressure Across the Country
A recent analysis from the Rhodium Group and Columbia University found that competition from cheap natural gas, flat electricity demand and more efficient energy use, and strong renewables growth have made up about 95 percent of the decline in domestic coal consumption over the past decade. The Obama administration’s public health protections (i.e. the so-called “war on coal”) had a significantly smaller role.
The economic pressures facing many coal units across the country are unlikely to abate any time soon. Forward prices for natural gas at Henry Hub are not currently set to rise above $4/MMBtu over the next decade. Moody’s recently released a report which estimated that in the Midwest, 56 gigawatts (GW) of coal-fired capacity is uneconomic compared to low-cost wind projects. In Arizona, Tucson Electric Power just signed a power purchase agreement (PPA) for solar coupled with storage for 4.5 cents per kilowatt-hour (kWh), with the solar portion of the PPA estimated to be just below 3 cents/kWh. This represents a record-breaking, astonishingly low price for solar power and the economic pressure on existing resources from new, low-cost solar projects might be arriving way sooner than previously expected.
Navajo Generating Station Is No Longer Financially Viable
Navajo Generating Station (NGS), a 2,250 megawatt (MW) coal-fired power plant, has been struggling to remain viable in Arizona while facing competition from cheap natural gas and solar. The creation of the Energy Imbalance Market will improve regional coordination among western utilities, facilitating stronger penetrations of renewables like wind and solar and higher utilization of existing natural gas units.
Driven by all of these factors, earlier this year, the utilities that own NGS—Salt River Project, Arizona Public Service Co., Tucson Electric Power Co., and NV Energy—voted to close the plant. NV Energy and the Los Angeles Department of Water and Power were already leaving the plant, meaning at least a third of the plant would already likely close before 2020. In June, under pressure from the utilities, the Navajo Nation Council approved a lease extension for the plant, which will allow it to keep operating for the next two years, after which it will retire unless further action is taken. Without the lease extension, NGS would have retired this summer, because it will take two years to decommission the plant. In a worrisome development, some analysts suggest the lease may transfer liability for some of the environmental damage from the plant to the Navajo Nation.
The utilities only own about 76 percent of the plant, with the U.S. government owning the remaining 24 percent through the Interior Department’s Bureau of Reclamation. The Bureau is currently exploring ways to keep the plant open past 2019 by finding a new owner to invest in the plant. Interior Secretary Ryan Zinke is reportedly involved and dropped into a stakeholder meeting unexpectedly in April.
A recent report from the National Renewable Energy Laboratory (NREL) determined that “whether and when NGS will again become economically competitive will depend on how quickly natural gas prices recover from their current low levels.” There are very few, if any, investors in the power sector willing to make that gamble, and NREL’s analysis reaffirms the decisions of the utilities to close the plant and the limited attractiveness of investing in NGS. Mike Hummel, the deputy general manager for Salt River Project, was more direct in his assessment, declaring “Without federal subsidies, we don’t see how a new owner can operate [NGS] cost-effectively.”
The Federal Government Should Prioritize Support for Local Communities
Instead of spending money on subsidies to bail out the plant for a few more years, the federal government and the state of Arizona should focus on supporting the workers and communities, and in particular the Navajo and Hopi Nations, that depend on the plant and the nearby Kayenta coal mine. The Bureau should be discussing, with a broad coalition of stakeholders, what it will take to provide economic assistance to help these communities transition while the plant shuts down.
The Arizona Corporation Commission has suggested that, in lieu of a new buyer, the federal government should subsidize half of the costs of keeping the plant running through 2022. Keeping NGS running for a few more years might provide some nice headlines for the Trump Administration, but it won’t do much for the local community. Rather than delaying the plant’s inevitable retirement, that money would be much better spent supporting and strengthening local economic growth, laying a solid foundation for a future without NGS.
The Institute for Energy Economics and Financial Analysis (IEEFA), an energy research non-profit, has found that keeping NGS online would require a substantial bailout: keeping the plant online between now and 2022 could cost $1 billion, and keeping the plant online out through 2030 would cost a total of $2.4 billion.
Using IEEFA’s estimates, keeping the plant online through 2022 would cost the federal government $500 million. IEEFA has prepared a blueprint for an economic transition plan that could be accomplished with those funds. The largest application of the funds would be to replace the lost revenues from the plant and the mine, which IEEFA estimates to be about $55 million annually. The revenues could be replaced over a 5-year period at a total cost of $275 million, leaving significant additional funding for investments in worker retraining and economic development- in a region with among the highest poverty in the country.
A Colorado program to retrain unemployed and dislocated workers to be wind technicians helped 77 percent of those who completed the training find employment in the wind industry, with 90 percent retaining their jobs in the following year. A Tennessee program focused on solar energy and carbon fiber industries helped over 80 percent of finishers find jobs in those industries, with 95 percent retaining employment over the next year. Coupled with support from the four utility owners, the Bureau of Reclamation, and Peabody Energy, there is a significant opportunity to retrain and rehire workers displaced by the NGS shutdown.
For example, the utilities can and should make substantial investments in new solar capacity as a significant part of the replacement portfolio as the plant retires. Arizona has some of the strongest solar resources in the country, and Arizona ranks 7th in the country in solar jobs, with nearly 400 new solar jobs created in 2016. The state can expand on that growth through targeted projects in Coconino, Navajo, and Apache counties, driving new investment and job creation while replacing the retired coal capacity.
IEEFA’s blueprint also prioritizes infrastructure investments, which are badly needed in both the Hopi and Navajo Nations. Water infrastructure needs to be restored due to depleted water resources which were diverted to a power plant in Nevada (which has since retired). Water rights should be on the table with the closure of multiple power plants in the region freeing up significant water for local use and river restoration. Currently, 38 percent of Navajo Nation lacks water services.
Investments in broadband access and advanced telecommunications would also provide critical support to the tribal communities, which unfortunately are home to some of the worst broadband access in the country. In January 2016, the Federal Communications Commission declared that “the rural-urban disparity in deployment of these broadband services also disproportionately impacts the ability of small businesses operating in rural areas to successfully compete in the 21st century economy.” Smart infrastructure and telecommunications investments could help diversify and strengthen the local economy.
The Trump Administration cannot reverse the market forces that are driving the transformation of the electricity system. In the case of Navajo Generating Station, the federal government has a chance to set an example by focusing its efforts on supporting the local community rather than wasting money on short term subsidies to the plant owners, who would still close the plant within a few years, even with hundreds of millions of dollars in federal subsidies. The Department of Interior should work with the state of Arizona, the Navajo and Hopi tribes, and other community leaders to develop and implement a sustainable transition plan and empower the local economy, laying the foundation for a brighter economic future after NGS retires.