This week the Federal Energy Regulatory Commission (FERC) rejected Energy Secretary Rick Perry’s plan to subsidize nuclear and coal-fired power plants. The proposal asked FERC to pay power plants for having a 90 day supply of fuel located on-site, which effectively advocated for the creation of a lifeline to coal and nuclear power, two energy sources that are finding it hard to stay profitable in the United States, on the justification that they’re able to provide consistent, reliable electricity. But FERC’s regulators were unanimous in their rejection of this plan, opting instead to ask the operators of the nation’s regional grids to review their own resilience and send information back to FERC within 60 days.
The big losers here, obviously, are nuclear and coal plants. Let’s start with nuclear. Throughout 2017, we saw repeated instances of the business problems endemic to nuclear power in the United States. In March, Westinghouse, one of the world’s biggest nuclear power construction companies, filed for Chapter 11 bankruptcy. Then in August, a new nuclear power project in South Carolina was abandoned, with the two utilities that owned it citing cost overruns, burdensome regulation, and unfavorable market conditions. Many of America’s reactors are nearing the end of their life cycles, and there aren’t any new reactors coming online to replace them. Risks, both catastrophic and security-related, have led to reams of red tape that have further undermined the economic feasibility of nuclear.
Advocates for nuclear power will tell you that the power source doesn’t get the plaudits it deserves. Next to hydro power, for example, it is the only source available for zero-emissions baseload power. Perry’s proposal would have compensated nuclear plants for their reliability and helped to make the business case for both keeping old nuclear plants online and breaking ground on new reactors somewhat better. After the FERC decision, nuclear’s future in the United States is grim again.
Coal is the other obvious loser here. Thanks to fracking, natural gas is abundant and remarkably cheap, and that’s hurting coal big time. Coal has never been an ideal electricity source, as burning it releases massive amounts of local air pollutants and greenhouse gases, but the one thing that it has had going for it has been its low price. The shale boom has changed all that. In most parts of the country, it makes a lot more sense to construct a new natural gas plant than a coal-fired one. The capital costs of the natural gas plant are lower, and of course the gas itself is considerably cheaper these days. The free market has dethroned Old King Coal, and it’s in this context that Perry’s FERC plan materialized.
But here’s the most interesting part of this entire ordeal: Perry’s appeal, made on behalf of coal and nuclear power, was based on the need for a resilient grid, capable of keeping the lights on through natural disasters or various supply shortages. Whatever your politics, that’s a laudable goal, but if that’s what the Trump Administration is really concerned about, then why not throw a bone to natural gas plants as well? After all, they’re perhaps the most important component of a resilient grid that we have in the United States today.
That claim requires some unpacking. Because natural gas plants are cheaper to build than coal plants, there is less of a commercial obligation to run them 24/7 to maximize the return on that initial investment. They can be ramped up and down relatively quickly, which makes them an ideal tool to help grid operators match supply with demand. As more wind and solar power comes online, there will be more issues with variability in our energy supply levels, thanks to the intermittency of these renewable sources, which can only provide power when the sun is shining or the wind is blowing. Natural gas-fired power plants are a handy complement to these sources, as they can be turned on at night or on windless days, or turned off when wind and solar farms are operating at peak capacity.
Given all the above, it makes little sense for Rick Perry to champion nuclear and coal in pursuit of grid resiliency without also including natural gas. There is, of course, a handy explanation for Perry’s plan: This was less about the best interests of the overall grid, and more about making good on one of Trump’s campaign promises by throwing a bone to coal. Coal’s biggest problem is cheap natural gas, so helping both energy sources out would effectively be of no help to coal at all; it needs a competitive advantage against natural gas, and FERC just denied it that.
That decision is probably the right one. This plan would have been trying to prop up plants that can’t cut it anymore, and it would have cost a lot of money (two non-partisan energy groups estimated it would come out to as much as $11.8 billion a year). There were some important pieces to this, though, that we should keep in mind. It makes a certain degree of sense to financially compensate power plants for their reliability, as that’s one of the things we value most in electrical power generation. As intermittent renewables continue to gain market share, reliability will be an increasingly salient, and valuable, issue. But if we do begin to reward baseload plants for their reliability, we should reward all baseload sources, not just the ones that are most politically expedient for the current administration.
And if we’re talking about pricing in externalities, we have to mention the environment—which, for power plants, means emissions. We value clean air and the current climate we live in, but we don’t have a consistent way to reward power sources that reflect those values. Here, a revenue neutral carbon tax might be of use—an idea that’s gaining traction on both sides of the aisle.
Whatever we do, it’s best not to be dogmatic about these energy choices. A 100 percent renewable power mix would, with current technologies, be woefully unreliable. Relying too much on coal, natural gas, or even nuclear puts us at risk if one of those options suffers a supply shock (or, in the case of nuclear, a high-profile accident that could shift public opinion against it, as we saw in Germany after the Fukushima incident). Resiliency is critical, and though his appeal to FERC was flawed Perry did offer us a useful reminder. As any investor will tell you, the key to resiliency is diversity. While we work on ways to properly reflect issues like baseload production or clean emissions in energy prices, we should also keep in mind that all of these energy sources work best in concert.