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You heard right: Trump administration is bailing out coal plants

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No one likes paying more on their electric bills. Unfortunately, that’s exactly what might happen if the US Department of Energy gets its way with a recent request that bails out uneconomic coal plants. UCS opposes both this and something similar under review by the West Virginia Public Service Commission.

Who benefits? Owners

The Trump administration proposes to force the markets to provide guaranteed profits to coal-fired power plants and nuclear plants that are failing in the competitive wholesale electricity markets. Although the proposal is thin on details, it would amount to a bailout. This primarily benefits the owners of US coal mines by paying the uneconomic coal-burning power plants upwards of $5 billion per year to keep burning coal from those mines.

The power plant owners will also have larger profits in the short-run.

Power plant owners of course understand these coal plants are uneconomic—which is why they are looking for someone to pay them to keep them online. Before the Trump DOE came along, West Virginia went through this in 2013 with the Harrison power plant, which has cost consumers more than $164 million so far. Now Harrison’s owner, FirstEnergy, is attemptingthe same thing with its Pleasants coal plant.

Coal plants potentially benefiting from DOE proposal in green and red. Size based on Co2 emissions. Source: UCS analysis

Coal plants potentially benefiting from DOE proposal in green and red. Size based on Co2 emissions. Source: UCS analysis

The track record of coal mine owners in protecting the jobs and health of coal miners is abysmal; spending money to keep coal-burning plants open is not a great policy for the communities in coal country. While purporting to support coal communities, the administration simultaneously proposed to cut federal budgets that support those communities.

Who pays? Trapped consumers

Bending the markets to require profits be given to a few plant owners is an awful idea. When the Administration rejects the markets’ results to favor a few political supporters, every business owner and every consumer should consider themselves under attack. Electricity is not a luxury or an option for our society.

The government needs a very clear explanation if the captive customers paying unavoidable electric bills are suddenly required to pay billions more in costs each year.

While FERC and state regulators do have the authority to approve rule changes that increase payments to existing power plants, using good policy to reduce the cost of an expensive change would be the responsible choice. Unfortunately, the debates are tilted against consumers.

How much money?

Estimates for increased payments to generators run in a range from $2.4 billion to $10.6 billion annually for payments under the proposed rule—but that does not include the pollution impacts. UCS offered FERC an initial estimate of costs due to increased CO2 emissions by calculating the CO2 emissions from existing coal-burning generators that appear to be eligible for the payments proposed by the DOE.

UCS found over 50 GW of existing coal capacity that would potentially be eligible for the proposed subsidy and included only those that were located within energy markets of PJM, MISO,NYISO, or ISO-NE, and that are known to be presently subject to market competition.

Using their 2016 CO2 emissions, the coal plants potentially eligible for payments under the DOE Proposal create annual costs of about $9 billion from emitted CO2. Impacts from other pollutants will make this higher.

What’s wrong with the DOE proposal?

The proposed rule submitted by the DOE is worse than vague about benefits to reliability or “resilience.” The DOE proposal has not defined the need for a set of services, not defined the services, and not defined the performance improvements sought or expected from generators eligible for proposed payments.

The DOE has not supported its proposal with evidence, nor is it supported by the body of science-backed reports that have been published in recent months, many of which were funded and directed by the DOE. The National Academy of Sciences described how to improve in electric system resilience, and the DOE ignored that, too.

The Federal Energy Regulatory Commission should not approve this proposed rule with this lack of evidence and detail regarding impacts on consumers and reliability.

Further, the DOE proposal fails to define resilience. This is sufficient reason for FERC to reject the proposal. Where “essential reliability services” have been defined, those capabilities can be provided by solar, wind, and storage.

Demonstrations of solar generation capabilities to provide “essential reliability services” have recently been published by the California ISO, California Energy Commission, National Renewable Energy Laboratory, and First Solar.

Earlier documentation of wind generation capacity providing reliability and ancillary services has been made by NREL, and deployed commercially by Xcel operators in Colorado.

Is the DOE wrong in claiming reliability is being affected?

Yes. The retirement of power plants in the RTOs/ISOs has not diminished the reliability of the electric power system, and DOE has not supported its claim that retirements of uneconomic creates a reliability impact.

Reliability is closely watched, with regular comprehensive reviews provided by NERC. The DOE proposal contradicts NERC and does so despite the fact that the NERC reliability assessment is cited in the DOE Staff report. NERC’s State of Reliability 2017 report states that the bulk power system is reliable today despite the recent plant retirements.

Resilience (and reliability) for the electric power system are desirable goals for the economy and the well-being of everyone—but without a definition and means to evaluate the contribution to serving such goals, a policy or expense cannot be justified.

A better approach is to invest small, distributed resources for the grid, given that the vast majority of customer outages are due to disturbances on the transmission and distribution systems and not the shortage of fuel at large power plants.

UCS continues to actively engage in the FERC and regional debates over the DOE proposal. Stay tuned for updates.

Mike Jacobs, senior energy analyst at the Union of Concerned Scientist

  

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  • neroden

    Thankfully, FERC will probably kill this coal subsidy proposal because it is blatantly illegal. If FERC doesn’t kill it, the courts will, because, again, it’s blatantly illegal. At the very least it will be delayed in court until the next Presidential administration, which will drop it like a hot potato.

    It’s important to fight it, but it should be understood that as long as we fight it, it has zero chance of being implemented. Watch for Trump’s next attempt.

    Sadly, Australia has far worse proposals which are far more likely to be implemented.

  • Geoff Roberts

    Maybe, but events in individual distribution and transmission line segments will still occur and can be mitigated by redundancy of transmission paths to an extent.

    However faults still need to be cleared (real mechanical inertia helps here) and as AEMO studies found in SA, the SA system works stably under stress events when there is a level of spinning reserve, so the rules have been adjusted to ensure that.

    If all the coal plants backed out due to low pool price, then you need to rapidly bring on gas fired plant, Batteries can provide fast but short duration power, but only if they already exist and are charged.

    Takes time to build them, meanwhile the coal fired plants already exist. The migration to renewables is inevitable and will occur in due course, but people need stable affordable power through the transition. Renewable developers of course just want “action” and seem to paint every move to restrain them from upsetting the systems as a conspiracy by climate deniers.

    • George Darroch

      We don’t want action. We need action, if we’re to retain a planet we can all live healthily on.

      And yes, a multibillion bailout to failing coal plants is a conspiracy against the climate, just a very public one.

    • yahoo2

      The thing is, If you take the time to look at the financials of the companies that run the gas generators in SA you will see that they ALL went from baseload to peaker and full market value to written down in a single 12 month period. They also “acquired” coal fire plants on the east coast during the same financial year from the state govt’s and on sold their SA held gas contracts. The Victorian interconnector was maxed out at every opportunity to get as much high profit coal fired juice into the state.

      They had no intention of supplying any local electricity or reliability to the South Australian consumer if they could help it. But as Josh keeps reminding us “it was all legal, no laws were broken” its just no oversight was given.

  • DevMac

    Life imitating Art or
    Art imitating Life, where:

    Art = Australia
    Life = US

  • Joe

    The Trump is crazy. I think the people of America are the ones needing to be bailed out.

    • Calamity_Jean

      As a US citizen I have to agree with you.

      • Frank

        Me too.

  • Alex Hromas

    Not all that much different form the proposals of our prime minister and some of the far right who want to subsidize Adani’s coal mine operation and build new coal fired plant in Queensland. Any new coal fired plant will need government subsidies as no private investor would contemplate such a woeful financial proposition.

  • Farmer Dave

    This is a good spot for me to put in a plug for The Energy Transition Show, a twice a month podcast by Chris Nelder. Chris discusses this move by the Trump administration in a recent news segment on the show and anticipates that the proposal will be bogged down in the courts for years.

    If you are an energy geek, then while RenewEconomy provides a great entree to a banquet, the Energy Transition Show is a fabulous main course. Taken together, one emerges extremely well fed on information one might not be able to pull together any other way. The one downside of the Energy Transition Show is that only cut-down episodes are free – a subscription is needed to get the full 60 to 90 minutes of each episode. I think they are absolutely worth the money.