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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Although the Trump administration has provided few details about plans to provide economic support for uneconomic coal and nuclear power plants after an internal memo on the topic was leaked in late May, economists have weighed in with widely varying estimates about the potential costs of that policy. Meanwhile, utilities continue to close coal-fired power plants, and consumption of thermal coal to generate electricity continues to decline. The newest addition to an ever-widening energy scrum is a new policy analysis from the New York University School of Law that said bailing out uneconomic coal and nuclear power plants would not be an example of best-practices policymaking.
President Donald Trump and Energy Secretary Rick Perry have continued to support coal in appearances before friendly audiences this summer, but until recently the Department of Energy (DoE) (Washington, D.C.) has said little about specific plans to use the Federal Power Act and the Defense Production Act to keep open uneconomic coal and nuclear plants in the name of national security. For more on the president's instruction to Perry, see June 12, 2018, article - Industry Split on Trump's Plan to Rescue Uneconomic Coal and Nuclear Plants.
Last week, according to a report in E&E News, a trade news organization, the chief of staff at the Federal Energy Regulatory Commission (FERC) (Washington, D.C.) told a nuclear conference that FERC was working with the DoE and the National Security Council (NSC) (Washington, D.C.) to identify which power plants were "critical" to the power grid, and thus require financial support.
In early June, a few days after the Trump mandate to save out-of-the-market coal and nuclear plants, Dayton Power & Light Company (DP&L), a unit of AES Corporation (NYSE:AES) (Arlington, Virginia), closed two coal-fired plants in Ohio with combined generating capacity of 2,373 megawatts (MW). The affected plants are the J.M. Stuart Station (1,755 MW) and the Killen Station (618 MW).
Since the late-May leak of the administration's memo on keeping open unprofitable coal and nuclear plants, four other coal-fired plants with combined generating capacity of 676 MW have closed. Late last month, the owner of the 675-MW Duane Arnold nuclear plant in Iowa said it would close the plant in late 2020, 14 years before its license is set to expire. For more information, see July 31, 2018, article - Early Closure of Duane Arnold Plant Reignites Nuclear Question: Where is the Bottom?
Premature closure of uneconomic coal plants, as well as operators' decisions to switch from coal to gas, have sharply lowered coal use at U.S. power plants, the Energy Information Administration (EIA) (Washington, D.C.) said on August 3. Coal has been under fire from a confluence of factors, including weak electric demand growth; tougher environmental regulation; abundant, low-cost natural gas; proliferation of renewable energy generation like wind and solar; and wholesale market rules that often don't pay asset owners for capacity.
U.S. power producers burned an estimated 661 million short tons of coal in 2017, the lowest level since 1983, the EIA said. Last year marked the fourth consecutive annual decline in coal use by utilities. Coal use by U.S. power producers last year was 36% less than it was in 2008, when the U.S. coal burn peaked. The decline since 2008 is about 376 million short tons, the EIA calculated.
Click on the image at right to see the EIA's estimate of coal use by U.S. power plants between 2008 and 2017.
In addition to trying to jawbone the market, the Trump administration also has tried to pressure the owners of the Navajo Generating Station (NGS), a 2,250-MW coal-fired plant in Northern Arizona, to stay open beyond its announced December 2019 closure date. A branch of the Department of Interior (DOI) (Washington, D.C.) owns a stake in NGS, and this summer a high-ranking DOI official reportedly leaned on the other owners to reverse their commitment to close the plant. Citing various laws, the DOI official said he could force NGS to stay open and compel one of the owners, a public agency, to buy its power. But none of the owners were swayed, and plans to close the plant have not changed.
State utility regulators and grid groups have said the administration's plan to bail out uneconomic plants is unnecessary. Last month, officials from two branches of the DoE at the last minute cancelled speaking engagements at a conference of state utility regulators, according to a report in RTO Insider, a trade newsletter. The absence of DoE speakers at a conference held in Scottsdale, Arizona, by the National Association of Regulatory Utility Commissioners (NARUC) (Washington, D.C.) led some conference attendees to speculate that the department wanted to avoid potentially tough questioning by state utility regulators and reporters about plans for implementing Trump's directive, RTO Insider said.
Asked why the DoE officials cancelled confirmed speaking engagements at the last minute, a statement from a DoE spokeswoman read: "There is an interagency policy review process underway regarding grid resilience and examining multiple policy options. It would have been premature for DoE representatives to discuss the specifics of that process while it remains ongoing."
Commissioners at the Federal Energy Regulatory Commission (FERC) (Washington, D.C.), an independent branch of the DoE, have resisted the Trump bailout plan, saying it is not needed to stabilize wholesale markets. In January, the agency rejected an early version of the Trump plan. For more information, see January 8, 2018, article - FERC Rejects Awarding Subsidies to Coal and Nuclear Units. Then, in congressional testimony June 12, after the Trump bailout plan leaked, all five FERC commissioners told the Senate Energy and Natural Resources Committee there was no economic or resiliency need for the government to interfere in wholesale electric markets because they were functioning well despite the retirements of coal and nuclear plants.
Meanwhile, economists recently have entered the fray, with dueling studies on the potential cost of the Trump rescue plan. At the low end of the range was a study sponsored by the American Coalition for Clean Coal Electricity (ACCCE) (Washington, D.C.), a coal-backed group. That study, conducted by ICF International Incorporated (NASDAQ:ICFI) (Fairfax, Virginia), pegged the cost of the plan at between $1 billion and $4 billion. ACCCE opined, "An investment of $4 billion to reduce the possibility of severe, prolonged power outages sounds like a good investment to us."
But a far higher estimate was provided in a study funded by groups opposed to the Trump plan. That study, conducted by The Brattle Group (Boston, Massachusetts), estimated the costs of implementing Trump's plan would be between $9.7 billion and $17.2 billion annually for a two-year period. The group said it was hampered in conducting its analysis because the administration has not released a list of plants it thought needed financial aid. In calculating the cost of the plan, the group focused on a subset of coal and nuclear plants that currently were not covering their operating costs. That subset of the coal and nuclear fleet had total generating capacity of between 226,600 MW and 297,400 MW.
The Brattle Group's study, released on July 19, was sponsored by a wide range of Washington, D.C.-based energy groups that stand to lose if the Trump plan is implemented. The sponsors of that study were the American Petroleum Institute (API), Advanced Energy Economy (AEE), the American Wind Energy Association (AWEA), the Electricity Consumers Resource Council (ELCON), the Electric Power Supply Association (EPSA) and the Natural Gas Supply Association (NGSA).
Another group joined the debate earlier this month. The Center for Policy Integrity at New York University School of Law on August 1 released a study, "Toward Resilience: Defining, Measuring, and Monetizing Resilience in the Electricity System," that found "in general, sufficient legal authorities exist at the state and federal levels to implement cost-beneficial resilience improvements."
The study, written by Burcin Unel, Ph.D. and Avi Zevin, added: "The Trump Administration's proposals to provide cost-based financial support to coal and nuclear plants do not reflect the best-practices for policy intended to support electric system resilience." Noting that most power outages result from disruptions to the distribution system, the authors defined "grid resilience" as "a broad concept that can be simplified into a four-part framework. A resilient electric system is one that has the ability to (1) avoid or resist shocks, (2) manage disruption, (3) quickly respond to a shock that occurs, and (4) fully recover and adapt to mitigate the effects of future shocks."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
President Donald Trump and Energy Secretary Rick Perry have continued to support coal in appearances before friendly audiences this summer, but until recently the Department of Energy (DoE) (Washington, D.C.) has said little about specific plans to use the Federal Power Act and the Defense Production Act to keep open uneconomic coal and nuclear plants in the name of national security. For more on the president's instruction to Perry, see June 12, 2018, article - Industry Split on Trump's Plan to Rescue Uneconomic Coal and Nuclear Plants.
Last week, according to a report in E&E News, a trade news organization, the chief of staff at the Federal Energy Regulatory Commission (FERC) (Washington, D.C.) told a nuclear conference that FERC was working with the DoE and the National Security Council (NSC) (Washington, D.C.) to identify which power plants were "critical" to the power grid, and thus require financial support.
In early June, a few days after the Trump mandate to save out-of-the-market coal and nuclear plants, Dayton Power & Light Company (DP&L), a unit of AES Corporation (NYSE:AES) (Arlington, Virginia), closed two coal-fired plants in Ohio with combined generating capacity of 2,373 megawatts (MW). The affected plants are the J.M. Stuart Station (1,755 MW) and the Killen Station (618 MW).
Since the late-May leak of the administration's memo on keeping open unprofitable coal and nuclear plants, four other coal-fired plants with combined generating capacity of 676 MW have closed. Late last month, the owner of the 675-MW Duane Arnold nuclear plant in Iowa said it would close the plant in late 2020, 14 years before its license is set to expire. For more information, see July 31, 2018, article - Early Closure of Duane Arnold Plant Reignites Nuclear Question: Where is the Bottom?
Premature closure of uneconomic coal plants, as well as operators' decisions to switch from coal to gas, have sharply lowered coal use at U.S. power plants, the Energy Information Administration (EIA) (Washington, D.C.) said on August 3. Coal has been under fire from a confluence of factors, including weak electric demand growth; tougher environmental regulation; abundant, low-cost natural gas; proliferation of renewable energy generation like wind and solar; and wholesale market rules that often don't pay asset owners for capacity.
U.S. power producers burned an estimated 661 million short tons of coal in 2017, the lowest level since 1983, the EIA said. Last year marked the fourth consecutive annual decline in coal use by utilities. Coal use by U.S. power producers last year was 36% less than it was in 2008, when the U.S. coal burn peaked. The decline since 2008 is about 376 million short tons, the EIA calculated.
In addition to trying to jawbone the market, the Trump administration also has tried to pressure the owners of the Navajo Generating Station (NGS), a 2,250-MW coal-fired plant in Northern Arizona, to stay open beyond its announced December 2019 closure date. A branch of the Department of Interior (DOI) (Washington, D.C.) owns a stake in NGS, and this summer a high-ranking DOI official reportedly leaned on the other owners to reverse their commitment to close the plant. Citing various laws, the DOI official said he could force NGS to stay open and compel one of the owners, a public agency, to buy its power. But none of the owners were swayed, and plans to close the plant have not changed.
State utility regulators and grid groups have said the administration's plan to bail out uneconomic plants is unnecessary. Last month, officials from two branches of the DoE at the last minute cancelled speaking engagements at a conference of state utility regulators, according to a report in RTO Insider, a trade newsletter. The absence of DoE speakers at a conference held in Scottsdale, Arizona, by the National Association of Regulatory Utility Commissioners (NARUC) (Washington, D.C.) led some conference attendees to speculate that the department wanted to avoid potentially tough questioning by state utility regulators and reporters about plans for implementing Trump's directive, RTO Insider said.
Asked why the DoE officials cancelled confirmed speaking engagements at the last minute, a statement from a DoE spokeswoman read: "There is an interagency policy review process underway regarding grid resilience and examining multiple policy options. It would have been premature for DoE representatives to discuss the specifics of that process while it remains ongoing."
Commissioners at the Federal Energy Regulatory Commission (FERC) (Washington, D.C.), an independent branch of the DoE, have resisted the Trump bailout plan, saying it is not needed to stabilize wholesale markets. In January, the agency rejected an early version of the Trump plan. For more information, see January 8, 2018, article - FERC Rejects Awarding Subsidies to Coal and Nuclear Units. Then, in congressional testimony June 12, after the Trump bailout plan leaked, all five FERC commissioners told the Senate Energy and Natural Resources Committee there was no economic or resiliency need for the government to interfere in wholesale electric markets because they were functioning well despite the retirements of coal and nuclear plants.
Meanwhile, economists recently have entered the fray, with dueling studies on the potential cost of the Trump rescue plan. At the low end of the range was a study sponsored by the American Coalition for Clean Coal Electricity (ACCCE) (Washington, D.C.), a coal-backed group. That study, conducted by ICF International Incorporated (NASDAQ:ICFI) (Fairfax, Virginia), pegged the cost of the plan at between $1 billion and $4 billion. ACCCE opined, "An investment of $4 billion to reduce the possibility of severe, prolonged power outages sounds like a good investment to us."
But a far higher estimate was provided in a study funded by groups opposed to the Trump plan. That study, conducted by The Brattle Group (Boston, Massachusetts), estimated the costs of implementing Trump's plan would be between $9.7 billion and $17.2 billion annually for a two-year period. The group said it was hampered in conducting its analysis because the administration has not released a list of plants it thought needed financial aid. In calculating the cost of the plan, the group focused on a subset of coal and nuclear plants that currently were not covering their operating costs. That subset of the coal and nuclear fleet had total generating capacity of between 226,600 MW and 297,400 MW.
The Brattle Group's study, released on July 19, was sponsored by a wide range of Washington, D.C.-based energy groups that stand to lose if the Trump plan is implemented. The sponsors of that study were the American Petroleum Institute (API), Advanced Energy Economy (AEE), the American Wind Energy Association (AWEA), the Electricity Consumers Resource Council (ELCON), the Electric Power Supply Association (EPSA) and the Natural Gas Supply Association (NGSA).
Another group joined the debate earlier this month. The Center for Policy Integrity at New York University School of Law on August 1 released a study, "Toward Resilience: Defining, Measuring, and Monetizing Resilience in the Electricity System," that found "in general, sufficient legal authorities exist at the state and federal levels to implement cost-beneficial resilience improvements."
The study, written by Burcin Unel, Ph.D. and Avi Zevin, added: "The Trump Administration's proposals to provide cost-based financial support to coal and nuclear plants do not reflect the best-practices for policy intended to support electric system resilience." Noting that most power outages result from disruptions to the distribution system, the authors defined "grid resilience" as "a broad concept that can be simplified into a four-part framework. A resilient electric system is one that has the ability to (1) avoid or resist shocks, (2) manage disruption, (3) quickly respond to a shock that occurs, and (4) fully recover and adapt to mitigate the effects of future shocks."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
