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Navajo Generating Station Shut Down



NAVAJO GENERATING STATION SHUT DOWN: WHAT DOES IT MEAN FOR ARIZONA AND THE DETHRONING OF KING COAL?


For much of the history of the energy industry, coal was the undisputed king of all fuel sources. Power providers would mine cheap coal and efficiently burn it to create a reliable and steady electricity source to keep the lights on across the country. In recent years, though, the crown of king coal has looked precarious at best as alternative fuel sources expanded in reach and pervasiveness across the nation’s energy mix while headlines continued to announce the closure of coal plant after coal plant.


In the waning weeks of 2020, another notable coal-fired power plant was officially taken offline with the closure of Navajo Generating Station. The fall of coal and subsequent rise of natural gas, renewable energy, and other forms of power generation is a national story, but looking at the individual closures as they happen provides critical insight into how and why these closures are happening as well as the implications of such trends, both in terms of the energy sources on the grid and the impact to the communities in which these plants are located.


BACKGROUND ON NAVAJO GENERATING STATION AND THE PROCESS OF CLOSURE


Navajo Generating Station operated as a coal-fired power plant in Page, Arizona, with owners that included the U.S. Bureau of Reclamation, Salt River Project (SRP), Arizona Public Service, NV Energy, Tucson Electric Power, though Salt River Project was the operator of the plant. Salt River Project is a public utility cooperative that in Arizona, serving the Phoenix area as one of the state’s largest power providers. They have over a dozen generating stations to go along with eight hydropower-producing dams. Navajo Generating Station had been successfully operating for 45 years as the largest coal plant in the Western United States. The full capacity of the plant was 2,250 megawatts (MW), which was enough to power over 1 million average homes.


In August 2019, the coal mine associated with the power plant closed and the plant had been since operating off of its remaining reserves. For now, decommissioning the plant is expected to take three to five years. This process includes “shutting down, decontaminating, draining fluids and bulk chemicals, torch cutting, imploding and demolishing the power block and related structures, including cooling towers, coal conveyance facilities, limestone crushing facilities, and other support facilities.” Given the responsible decommissioning has so many critical factors, it will keep SRP and many of its employees busy for the time being, but as of a little past Noon on November 18, 2019, no more power will be heading to the grid from Navajo Generating Station.


WHY DID NAVAJO GENERATING STATION CLOSE?


The announcement of Navajo Generating Station closing was not a shock to most people following the plant, as stakeholders had been debating whether or not the plant could stay operational moving forward. Owners had tried their best to keep it open, but the coal industry has experienced a rough time across the region and the wider country in recent years, mainly coming from two angles.


The first, and the most impactful, reason Navajo Generating Station ended up closing was simple economics. SRP CEO Mike Hummel said the decision to close Navajo Generating Station was necessary because of the simple business case that it did not look to remain profitable. The reputation of King Coal persisted for long because of how cheap of a fuel coal has always been. Going back over two decades, coal has consistently been significantly cheaper than natural gas (coal’s main competition for most abundant electricity source in recent decades) according to the U.S. Energy Information Administration (EIA). The disparity in price between coal and natural gas reached its peak in 2005 when electricity generated by natural gas cost more than five times more than electricity generated by coal. In recent years, that price disparity has largely closed. Data from 2019 show that gas powered electricity was ‘only’ 43% more expensive than coal and that number was projected to drop to 26% in 2020. So, the cost advantage coal has enjoyed compared with natural gas has been dwindling, but tack onto that the fact that the past decade has seen an explosion in renewable energy research, development, and buildout that’s resulted solar and wind as the cheapest energy sources, according to IRENA. Particularly for solar and wind, the only costs come from upfront installation and regular maintenance, but no fuel costs are factored in. And while the U.S. grid is not yet ready to shift to 100% renewable energy grid yet because of the shortcomings of intermittency and less reliability, using cheap renewables whenever available and a baseload of always-ready natural gas means the economic advantage that created king coal is evaporating before our eyes.


The second factor that’s been leading to the consistent closure of coal power plants comes from the environmental side. The cost analysis of coal plants that had been historically conducted tended to ignore the emissions put out by a power plant, allowing coal to thrive in comparison. But in recent decades, concern about local pollution and the climate impact of widespread carbon emissions have become top priorities for utilities, stakeholders, and local communities. As those aspects get factored in, coal has started to look like not quite a bargain as the electricity source that emits the most carbon dioxide per unit of electricity generated. If the damages from those emissions are ‘free’ for the power producers, but the effects create a burden on those in the region, then that’s results in what economists call negative externalities where the ‘common good’ gets damaged with no accountability. But recent attention to those damages has resulted in various air-quality requirements mandating a maximum level of emissions allowed (which come at a cost to the utility), policies requiring 100% carbon-free power generation at certain deadlines, and even debate about carbon taxes. These strategies all share the same end goal of making it more expensive for a power plant to generate electricity using carbon intensive fuels and allowing the cleaner fuels (whether natural gas, nuclear, or renewables) to compete more easily.


When the economics and the push for cleaner energy team up, it’s been no surprise that coal generation has been on the downswing and is reasonably going to continue to decline and see such closures until coal is only a very minor, and eventually non-existent, part of the power grid mix.


IMPACT TO ARIZONA OF THE NAVAJO GENERATING STATION CLOSURE


The utilities that had a stake in Navajo Generating station sought to keep the plant open as long as possible, as did local stakeholder groups who economically benefitted from the plant like the local Navajo and Hopi tribes. After the last ditch effort to find another buyer who would take on the plant failed, closure and decommissioning was the only choice.


On a local level, the importance to the Navajo Generating Station to the region’s communities was great, as the operations in total employed 750 people between the mine that supplied the power plant and the plant itself, with most of those employees coming from the Native American communities. Most of the miners, save for a minority that are still working to reclaim the land, were laid off, which is of course devastating to those families. For the plant workers, they were mostly able to be transferred to other jobs at SRP, which helped ease the local economic blow. But the worker displacement issue is always a critical consideration for any plant closure. While on a macro level, policies continue to seek to enable the energy transition from fossil fuels to cleaner energy sources for the common good, the localized impacts on the communities must not be overlooked, which is why the emphasis is, and must continue to be, on helping affected workers to re-skill, job transfer, or start new careers when their livelihoods are impacted.


Of particular concern in the fallout of Navajo Generating Station’s closure is the local Navajo and Hobi tribes, who will not only see workers lose their job but as tribal organizations will lose the royalties they got from the plant. As Hobi Chairman Timothy Nuvangyaoma noted: “”It’s hard work, but we’re Hopi and we’ve always been survivors, so we’ll survive. We share the same concern as the Navajo Nation. It’s definitely an impact, but as far as Hopi goes, we’re working hard at trying to mitigate this because our community members matter.” All of this is piling onto additional coal plant closures seen in the Southwestern United States, largely focused in communities Native American tribes. In addition to Navajo Generating Station, in recent years APS announced plans to close the Four Corners Power Plant in 2031, San Juan Generating Station in New Mexico is potentially going to close by 2022, and the economics continue to bring additional potential closures.


In the immediate aftermath of the Navajo Generating Station closure, SRP noted that the gap in power production would be replaced with natural gas already available along with planned additions of solar generating capacity (including from two solar plus energy storage projects recently purchased that will come online by 2023). Arizona currently requires utilities to reach 15% of their power being attained from renewables by 2025, and more aggressive targets are in the pipeline, and as more aggressive requirements come into focus, these closures will happen more and more. Utilities themselves have noted that they will continue to rely on Palo Verde, the nation’s largest nuclear power plant, added renewable energy, wide-scale additional of utility-scale energy storage (such as batteries), and more innovations and rely less on coal. As this has happened, the energy mix on Arizona’s grid has largely reflected the changes. In 2010, coal made up 39% of Arizona’s electricity mix compared with 28% coming from nuclear, 27% from gas, and 6% from renewable sources. By 2015, that mix changed slightly to 32% coal, 30% gas, 29% nuclear, and 7% renewable, but by 2019 (the last year for which data are available) coal sat in third place at 20% behind gas (41%) and nuclear (28%), while renewable sources (11%) continue to catch up. These trends show no sign of stopping, but rather should be expected to pick up the pace as Arizonians, regulators, and advocates all push for a cleaner power grid. Assuming that can be done with the justice that comes with aiding coal dependent communities, this trend is an undeniably positive one.


WHAT DOES THIS PORTEND FOR THE NATIONAL COAL INDUSTRY?


In terms of the national scale of the coal industry, Navajo Generating Station’s capacity of 2,250 MW placed it in the top 20 largest coal generating stations in the United States, and tied with Martin Lake in Texas for the largest coal plant in the U.S. Southwest. So, the coal industry won’t fade away just because Navajo Generating Station is off the grid, and the regional grid hasn’t and won’t see any strain or interruption. But on the national scale, the closure of Navajo Generating Station after years of pushback from within the community can suitably be seen as a microcosm of what’s going on across the country.


According to EIA, 95 gigawatts (GW) of coal capacity were closed or switched to another fuel from 2011 to mid-2020, with another 25 GW of closures already on the schedule by the end of 2025.


And as environmental protections, carbon restrictions, and clean energy mandates keep up their momentum—ushered in with new enthusiasm under President Biden—the early advantages that coal had as a cheap energy source are being overtaken by new market trends and competing priorities. Coal still makes up an important and resilient part of the national grid’s energy mix for the time being, but EIA has tracked it first being overtaken definitively (and without letting go its grip) by natural gas and more recently by renewables in terms of generation. So while it would be premature to say coal is completely dead, it’s fair to declare it dethroned and no longer king.


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