How Berkshire Hathaway Energy Escaped ‘The Coal Trap’

Warren Buffet’s Berkshire HathawayBRK.B
Energy purchased 2,000 acres in West Virginia, where the company will provide solar energy to an aerospace enterprise, creating as many as 1,000 jobs. The $500 million project is a potential magnet for similar businesses and helps to diversify the state’s economy and energy base.

Despite the optimism, economic expansion remains an uphill battle. West Virginia’s Public Service Commission is under the thumb of coal companies that still have political muscle. Examples abound, underscoring that point. The state’s citizens are paying more for electricity as a result, while their communities may forego growth.

Indeed, sustainability drives companies, and nearly all have carbon reduction goals. Their consumers, employees, and shareholders are demanding that of them. West Virginia’s prominent players — Procter & Gamble, Toyota Motor Corp., and NucorNUE
Corp.— are national leaders, cutting carbon by buying more renewables, deploying energy efficiency, and reducing waste.

“The people of West Virginia are ahead of their leaders,” says James Van Nostrand, Center for Energy & Sustainable Development director at West Virginia University’s College of Law. “There is a transition underway and we need to get some clean energy jobs out of it. Otherwise, we will go down the drain with coal.”

Van Nostrand has just authored a book called “The Coal Trap: How West Virginia Was Left Behind in the Clean Energy Revolution.” In a conversation with this writer, he explains that the state’s rate of increase in electricity prices between 2008 and 2020 is more than five times the national average, although it still has the 13th lowest retail rates in the country. But utility regulators want to keep existing coal plants open, causing American ElectricAEP
Power to request $448 million to continue operating three plants past 2028.

The burden now falls on the customers to prop up those coal facilities — a citizenry with the second lowest median income in the country. Van Nostrand says AEP’s rates have doubled between 2008 and 2020, “and it’s going to get far worse.” West Virginia has seven coal plants, built mostly in the late 1970s. They represent 91% of the state’s energy mix. Natural gas makes up 2%. Ideally, utilities could run their coal plants at less capacity and buy wind and solar power more cheaply on the open market.

Political versus Economic Capital

Ironically, AEP aims to be carbon neutral by 2050 and to reduce its CO2 emissions by 80% by 2030 from a 2000 baseline. In 2005, it owned 24,000 MW of coal. Now it has 12,000 MW. It will close 5,600 MW of that by 2030. Duke EnergyDUK
, too, has retired 6,500 MW of coal since 2010, and it will close 1,900 more MW of coal by 2025.

Consider Berkshire’s PacifiCorp, which does business in six western states: It outlines its need for 1,345 MW of new wind and solar generation resources, combined with 600 MW of co-located energy storage resources within the next six years. That will result in a 74% reduction of greenhouse gas emissions from 2005 levels by 2030.

It also includes an advanced nuclear project — a small modular reactor developed by TerraPower. It will replace a retiring coal plant. The utility is shedding all of its coal plants by 2037 and converting two of them to natural gas. The state’s Clean Energy Transformation Act eliminates coal and requires the grid to be decarbonized by 2045.

“The consumer education process is going to be challenging,” says Van Nostrand, relating to communities that have long depended on coal. “Every other state has moved to natural gas, wind, and solar. Unfortunately, West Virginia’s utility regulators have doubled down on coal. But we are dealing with job creators that want to locate in West Virginia.”

Nationally, the coal industry has lost its influence. But in West Virginia, it remains potent. It contributes to the tax base and supports 29,674 jobs in the state — a modest but influential group. However, coal’s actual costs are “externalized” and not reflected in the price of electricity. That is, taxpayers bear environmental and medical expenses. Abandoned mines, for example, will cost billions to repair.

Moreover, a University of California at Berkeley study says that the United States can generate 80% of its power from renewables in 2030 without causing electricity prices to rise. Of the nearly 28,000 MW of power that came online in 2021, wind power made up 41%, while solar energy comprised 36%. Natural gas was about 20%. Utilities are making economic decisions, not political ones.

Powering the Economic Engine

Given the political perils, how did Berkshire Hathaway Energy evade the coal trap? According to Van Nostrand, the project will function more like a microgrid, generating onsite solar power, storing it in a battery, and sending it through a localized mini-grid. So far, the aerospace business Precision CastpartsPCP
/Time is the primary customer — a Berkshire subsidiary. Berkshire used its bargaining power to bypass the public service commission.

“This is just the beginning,” says Alicia Knapp, chief executive of Berkshire Hathaway Energy’s Renewables unit, as quoted by WV Metro News.

Solar energy is nationwide. While California, Florida, and Texas make up a sizable market share, it still thrives in Massachusetts, New Jersey, and New York. It’s a function of falling prices. Witness the growth of the national solar market — due in part to a federal investment tax credit of 26%. That benefit is now available to all carbon-free projects, including nuclear, hydrogen, and carbon capture and storage because of the Inflation Reduction Act.

Meanwhile, West Virginia legislators passed bills so that the two biggest utilities — AEP and FirstEnergyFE
Corp. — could install solar power in 50-megawatt increments. The legislature also passed a law allowing solar developers to enter into “power purchase agreements” with churches, schools, and municipalities — contracts that give them guaranteed sales at fixed prices.

The strategy is working: An EDF Renewables unit and Raleigh Solar applied late last year to build a 92.5-MW facility and a 90-MW project, respectively. And SEVA WV will build a 250-MW project on top of a former coal mine — an investment of $320 million.

However, consulting firm Wood MacKenzie says West Virginia has 18 MW of installed solar, which ranks it third from the bottom nationally.

“The energy transition has not happened in West Virginia. But there are some encouraging signs, and the Inflation Reduction Act will jumpstart that,” says Van Nostrand, a Republican. “The primary problem is the state’s public service commission is in coal’s pocket. Consumers are paying more because of it. But it is preventing potential employers from locating here. The interconnected grid means we can buy clean power elsewhere for now. Moving away from coal is needed to save the planet — and it will result in lower electricity rates.”

It will also spawn economic development and bring 21st Century businesses to the state. Berkshire Hathaway is the latest, preceded by others that promise to hire thousands and contribute to the treasury. It’s been a slow process, but West Virginia will move forward — powered by clean energy and demanded by its people.