A draft memo from the U.S. Department of Energy proposes ordering grid operators to buy electricity from uneconomic coal and nuclear plants in order to prevent them from closing. This statement addresses the proposal’s potential implications, and is attributable to Energy Innovation Director of Energy Policy Design Robbie Orvis.

“Make no mistake. This is not about grid resilience, reliability, or the nation’s security. What’s being discussed is the most egregious overstepping of federal authority into competitive energy markets in recent memory. This is about two uncompetitive, dying industries struggling to find any way to survive, and having found a willing listener and advocate in Trump.”

“We do not need to keep uneconomic coal and nuclear plants for resilience or reliability; multiple studies, including several by the grid operators themselves, have made this abundantly clear. Large grid outages are not caused by fuel shortages, but rather they are caused by problems on the transmission and distribution systems.  The type of intervention into competitive electricity markets being discussed is antithetical to competitive, free markets, which are working well to deliver to lower costs to customers.”

“The Trump administration would have customers shoulder billions of dollars in costs to support a withering industry that has failed to remain competitive with the abundance of new natural gas, cheap renewable resources, flat demand growth, and growing energy efficiency. What’s being discussed here is disgraceful and threatens to undermine the very foundation of competitive electricity markets.”

“Energy Innovation and the Climate Policy Initiative estimated potential costs of paying (subsidizing) merchant coal and nuclear plants that are uneconomic based on the Resilience NOPR last year. Some of the study’s high-level findings:”

• Depending on how plants are compensated, the total costs could range from $311 million to $11.8 billion per year.
• More than 80 percent of the costs of subsidizing coal would be passed on to just 5 companies (NRG, Dynegy, FirstEnergy, American Electric Power, and Talen Energy).
• 90 percent of the costs of to subsidize nuclear would go to just five companies (Exelon, Entergy, PSEG, NextEra, and FirstEnergy)

“There are, of course, important differences between the resilience NOPR and the 202(c) actions being discussed by the Trump Administration, but our study is a good rough estimate of the cost to keep the same group of uneconomic plants online.”

“The Trump Administration’s proposal could also impact America’s natural gas fleet. As a general rule of thumb, there are a few ways to look at this.”

“First, any action that avoids retirements of coal or nuclear plants, puts more capacity in the regional markets, which will result in fewer hours for gas plants to run. This is especially true with nuclear plants, because they are typically run “always on,” meaning they don’t compete on price to dispatch. With coal plants, it’s a bit more uncertain. Some units will operate that way, but others will compete on price. In either case though, fewer retirements means less generation from gas and lower market prices.”

“Second, under these rules it’s possible FERC or DOE could order the RTOs to buy some amount of energy from coal and nuclear generators. That would also limit the remaining energy available for gas plants to provide.”

“Finally, we’ve already seen fewer and fewer new gas plants enter the market. For example, PJM Interconnection’s capacity auction last week saw the lowest amount of new natural gas entry in many years. Keeping capacity around that is otherwise economic and would retire means this trend of falling natural gas entry in the markets will continue.”