Savannah Kerstiens: Understanding Indiana’s rising electricity rates
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.•
Kerstiens is president of Reliable Energy, a trade association formed in 2020 by representatives of Alliance Coal and Hallador Energy.
