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Indiana has experienced a significant shift in its electricity rates over the last two decades. Once among the lowest in the United States, the state now ranks 22nd highest for electricity costs. This rise has raised concerns among residents and businesses, prompting a closer look at the factors behind the increases.
One common assumption is that Indiana’s reliance on coal is the main reason for rising electricity costs. However, the reality is more complex. In 2004, coal made up 95% of Indiana’s electricity generation; today, it accounts for only 40%. Despite this shift, electricity rates continue to climb.
U.S. Secretary of Energy Chris Wright recently emphasized that moving away from coal has led to higher costs and less stable grids. For example, Kentucky still gets 60% of its electricity from coal and maintains lower rates than Indiana.
If coal isn’t the primary factor, what’s behind the rate hikes?
The shift to natural gas: The transition from coal to natural gas is a major contributor to rising electricity rates. Replacing coal plants with natural gas infrastructure involves significant investment. Additionally, natural gas prices are volatile, creating unpredictable energy costs. The logistics of importing gas via pipelines also add expenses.
Stranded costs: When coal plants are prematurely decommissioned, utilities are left with the remaining costs, similar to paying a mortgage on a house you no longer live in. These “stranded costs” are passed on to ratepayers. A prime example is CenterPoint customers, who are currently paying for both the decommissioned AB Brown coal plant and the new natural gas plant that replaced it.
Regulatory pressures: Environmental regulations mandating early retirement of coal plants are another factor. While these policies aim for cleaner energy, new natural gas plants will eventually face similar regulations, potentially leading to additional investments in technologies like carbon capture or green hydrogen. These expenses mirror the upgrades that would have been necessary had coal plants continued to operate.
As energy demand grows, utilities face the challenge of balancing affordability with reliable service. Experts from the Federal Energy Regulatory Commission, the North American Electric Reliability Corporation and Secretary Wright all agree that prematurely decommissioning plants in favor of new infrastructure doesn’t provide a long-term solution for affordability or reliability.
Instead of hastily converting coal plants, Indiana should focus on maintaining existing plants while exploring baseload energy alternatives. Small modular reactors are a promising solution. These compact nuclear reactors can provide clean, reliable energy with fewer environmental risks than traditional coal plants. By using existing coal plants as a bridge to transition toward SMRs, Indiana could avoid costly coal-to-gas conversions and position itself for a more sustainable energy future.
Rising electricity rates in Indiana are being driven by reduced coal generation despite what Hoosiers are being led to believe. Indiana should take guidance from energy experts and grid operators to tackle the real drivers of increasing electricity costs. By addressing these root causes directly, the state can work toward a more affordable and sustainable energy future—one that balances economic realities with environmental goals.•
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Kerstiens is president of Reliable Energy, a trade association formed in 2020 by representatives of Alliance Coal and Hallador Energy.
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This view from the coal industry is a great reminder that our regulated utilities are allowed to recover their capital costs in the form of rate increases (rate-based regulation) – whether that is from fuel cost increases, capital improvements, or plant decommissionings. Whatever the technology, capital investments (assets) are paid for by Hoosiers.
However, this article’s focus on coal fails to mention the most positive market developments for regulated utilities and Hoosiers alike – which is renewable energy – and more specifically, solar power. This story about regulation cannot be told accurately today without highlighting solar + storage:
– Solar installation costs have dropped by nearly 40% over the last decade.
– The US added record amounts of solar + storage to the grid in 2023 & 2024.
– According to the US Energy Information Administration, solar and energy storage made up 81% of new U.S. electric-generating capacity in 2024 (there are no plans for any new coal additions)
– Solar is adding more capacity to the U.S. grid than every other energy source combined.
– Solar plus storage are the fastest and most cost-effective technologies to deploy.
– Over the next 5 years, the U.S. solar and storage industry is expected to add at least 200 GW of new solar capacity, nearly the same amount of solar that we have installed today.
– According to Lazard which has been tracking the Levelized Cost of Energy for the past 17 years, the cost of solar is less than half the cost of coal and lower than gas; and when energy storage is added to firm up solar generation, solar is still lower than coal.
– The Edison Electric Institute estimates that maintaining the current framework for tax credits (including renewable energy & solar) will enable electric companies to lower customer bills by $45 billion between 2025 and 2032.
Furthermore, while the concept of small modular nuclear reactors is an interesting topic for technology futurists, they are not currently economically feasible, nor permittable, nor deployable. The mention of a non-existent technology is nothing more than green window dressing. And it is a disservice to Hoosiers to use words like “sustainable” and “environmental” in support of additional coal generation. If you want to talk about sustainable solutions, look no further than solar, wind, and energy storage.
All good points by Mick M. Also, the General Assembly killing the statewide energy efficiency program (Energize Indiana) and net metering for rooftop solar (which allowed rooftop solar customers to actually save money on their bills) has contributed greatly to rising costs. The virtual sole emphasis on utility-scale investment – mainly natural gas, coal, and transmission/in the future nuclear power – and lack of emphasis on distributed resources – home and business-owned solar + storage + expansive demand response programs – is what is driving up ratepayer electric bills. We really need a statewide (in every county) dialogue on our energy options and costs, initiated by the GA or League of Women voters or other organization that will host a serious discussion of how to achieve affordability while maintaining reliability. And the consumer side has to be represented – not just nat gas, coal and nuclear advocates along with the utility lobby. The supermajority at the Statehouse is heading in the diametrically opposed direction it should be with respect to utility/energy policy. In terms of the viewpoint here, the O&M costs for coal-fired power plants rise with age. And they are vulnerable to extreme weather events that will only increase with time.