Energy Secretary Rick Perry has proposed subsidizing coal and nuclear power plants. He made his so-called Grid Resiliency Pricing Rule proposal in a notice sent at the end of September to the Federal Energy Regulatory Commission (FERC), suggesting that grid reliability could only be ensured if baseload generators were subsidized and maintained a 90-day stockpile of fuel.
This proposal has been met with delight by the coal and nuclear industries — this, finally, is how the Trump administration could “save” those failing industries. But other parts of the energy world have cried foul, predicting that such a move would “blow up energy markets,” and would radically reshape the U.S. electricity industry.
What’s it all mean, and why should I care?
First, let’s talk about how we got here (stick with me!):
The old days: Our relationship with power used to be way less complicated than it is today. Decades ago, we paid a utility for electricity. That utility built, owned and operated the power lines and the power plants that generated electricity for its customers.
Stephanie Joyce / Wyoming Public Media
Power transmission lines march across the Shirley Basin in central Wyoming.
Nowadays: But in recent years, independent groups formed in about two-thirds of the country to supply power to the grid across broad geographic regions, like the Midwest or New England. These grid operators are called regional transmission organizations (RTOs) and independent system operators (ISOs). As a result, much of the country has no idea where its electricity is coming from: a coal plant on the edge of town, or a wind farm owned by another utility in a different state? There’s no way to track where an electron travels from generation to consumption. Electrons just go where they’re needed at any given time, as directed by the grid operator’s computer algorithms searching for the lowest-cost electron.
It’s an auction: When a grid operator is looking for power, it becomes an auction between generators across the region. Each generator, be it coal, wind, natural gas or solar, offers its electricity for whatever price it can make at a given time. The grid operator lines up all the bids, from the cheapest (usually wind or solar) to most expensive (often coal or gas or oil) and comes up with a cutoff price, depending on electricity demand. The grid operator dispatches electricity from all the generators with bids below that cutoff price.
Coal can’t compete: Cheap natural gas and renewables are causing that cutoff price to drop. As a result, generators that are more expensive to operate like coal are not being used, or are turned on and off as needed. That’s not an efficient use of a coal plant, and many just cannot afford to compete in this market saturated with cheap natural gas (which can be turned off and on) and renewables.
Finally, what all this means to for coal:
The coal industry and its supporters, like Perry, argue that coal and nuclear are a baseload power needed to keep the lights on (when the wind isn’t blowing or the sun isn’t shining). Because coal and nuclear can’t compete with cheaper (and cleaner) sources of power, they need to be subsidized. And those sources of power are critical, they argue, in, say, extreme weather events where on-site storage means power is there when it is needed.
Reid Frazier / Allegheny Front
Coal stockpiled at a power plant.
Most energy experts argue, however, that Secretary Perry’s own recent “grid reliability” study came up with very different conclusions. The current grid, with over 30 percent natural gas, an increasing amount of renewables, and an ever-decreasing amount of coal-fired generation, is in fact resilient today. As the grid is further transformed there will be new challenges that have to be overcome, the report concluded. Still, as one energy commentator put it, Perry’s proposal to subsidize coal and nuclear is a “solution in search of a problem.”
So what’s the impact of this, if FERC goes along with DOE’s proposal?
First note that FERC is an independent body, and doesn’t have to do the Department of Energy’s bidding. But at least one FERC commissioner has indicated that he believes coal should be subsidized.
If the plan in some part is accepted, it would only affect those electricity markets that have been restructured into ISOs and RTOs (see above!). And in many parts of the country, even those restructured markets wouldn’t be affected because they have little or no coal or nuclear generation (California, New York and New England, for instance). Texas won’t be affected, because they run their own grid and are not under the jurisdiction of FERC. The part of the country that would have to deal with the most subsidies is the mid-Atlantic region or the PJM Interconnection, the largest wholesale power market in the world. That region would reportedly face “hundreds of applications” from distressed coal and nuclear plants. It would be expensive. Electricity prices would go up. Some analysts believe wholesale markets across the country could be destroyed.
What is more likely?
A broad coalition of energy and business leaders have come out against Perry’s proposal, making strange bedfellows of renewable businesses with groups like the American Petroleum Institute that lobbies on behalf of natural gas. Conservative groups with ties to the Trump administration describe Perry’s proposal as “using a sledgehammer to swat a fly.” Others note that by choosing to subsidize coal and nuclear, the Trump administration would doing exactly what conservatives have accused the Obama administration of doing, choosing winners and losers in a free market energy economy.
Still, against all odds, the Trump administration continues to push the President’s agenda to save coal and reduce regulatory burdens on the fossil fuel industry. This proposal came just days before the Environmental Protection Agency announcement that it’s repealing the Clean Power Plan, an Obama-era effort targeting emissions from coal-fired power plants. The renewable industry is awaiting a decision in coming weeks on whether or not the Trump administration will impose steep tariffs on imported solar panels. These moves taken together, if successful, could engineer a radical shift in direction for the U.S. energy industry.
