Photographer: Luke Sharrett/Bloomberg

U.S. Lays Groundwork for Saving Coal Plants With Grid Report

  • Report on electic grid touts value of coal-fired power
  • Calls for ways to compensate reliability of coal, nuclear

The Energy Department, in a long-anticipated report on the security of the U.S. electric grid, makes the case for rescuing the nation’s coal industry from widespread plant shutdowns, but stops short of an assault on renewable power that environmentalists had feared.

The study, commissioned by Energy Secretary Rick Perry who has warned that policies favoring solar and wind may be forcing plants to shut and threatening the grid, recommends that the Environmental Protection Agency ease rules on coal plants. It also calls for changes to how wholesale electricity is traded and easier permitting for resources such as coal, nuclear and hydropower.

The report hands President Donald Trump a plan for fulfilling his campaign promise to revive America’s ailing coal industry and put miners back to work. It paints a somewhat grimmer picture of grid security than an earlier draft that concluded the nation’s power system is more reliable than ever, in spite of coal plant shutdowns. By contrast, the final report cautions that “market designs may be inadequate” to keep “traditional” power generation online.

Trump Says U.S. Is on Cusp of ’Energy Revolution’

Source: Bloomberg

“It is apparent that in today’s competitive markets certain regulations and subsidies are having a large impact on the functioning of markets, and thereby challenging our power generation mix," Perry said in a statement. “Customers should know that a resilient electric grid does come with a price.”

As World Edges Away From Coal, Trump Pledges Revival: QuickTake

The report appeared to have little effect on the shares of utilities, power generators and coal miners. Miner Alliance Resource Partners LP fell 1.4 percent to $17.80 at 11:35 a.m., its biggest intraday decline since Monday. Power producer NRG Energy Inc. dropped as much as 1.9 percent, the biggest intraday decline in a week. Exelon Corp., the biggest U.S. nuclear generator, was little changed at $38.28.

The report was “consistent with market expectations and does little directly to correct market anomalies,” Barclays analysts led by Daniel Ford wrote in research published Thursday. Federal prodding could lead to higher profit margins in PJM, the largest U.S. power market, by the summer of 2018, according to the research.

The U.S. power industry has been waiting for the Energy Department to release the study for months. Power generator FirstEnergy Corp. said in April that it wanted to see the results before pressing ahead with a plan to divest money-losing coal and nuclear plants. Rival Exelon, the largest operator of reactors in the U.S., told investors this month that it expected the report to highlight the “critical role” that nuclear plays.

The report lays out policy options that could support coal in the future, but falls short of offering immediate solutions for companies like FirstEnergy, which is weighing the closing of three coal plants in Pennsylvania, Ohio and West Virginia.

“It is too soon to tell the extent to which the federal government’s action will assist FirstEnergy’s facilities," Jennifer Young, a spokeswoman for FirstEnergy said by email Thursday. 

The company, along with coal supplier Murray Energy, had asked the Energy Department to issue an emergency order that would enable its plants to keep operating. In the days leading up to the release of the grid report, the agency still had not granted that request.

Cheap Gas

The sweeping 181-page report concludes that coal-fired and nuclear power plants are being forced out of business primarily because they can’t compete against cheap and abundant natural gas, which is flowing out of U.S. shale formations at a record pace. Policies favoring solar and wind energy have also played a role, the study shows.

It stresses the critical need to preserve coal, nuclear and other “baseload” plants that continue to produce power when the wind isn’t blowing and sun isn’t shining. The report argues that even natural gas-fired generators, which rely on pipelines to receive fuel, may be less resilient.

“The more we rely on natural gas, the more we’re relying on fuel that arrives just in time” at a power plant, said Joseph Dominguez, Exelon’s vice president of governmental and regulatory affairs and public policy.

A ‘Warped View’

Federal regulators are “going to have to value these resilience attributes” of dependable resources, especially coal plants that can store enough fuel on-site to last months, said Paul Bailey, chief executive officer of American Coalition for Clean Coal Electricity. “Coal stacks up really well. Natural gas does OK. Nuclear does pretty well. Renewables don’t do well in some respects and do OK in others.”

“You need a coal fleet in order to have a resilient and reliable grid,” Bailey said. 

John Shelk, president of the Washington-based Electric Power Supply Association, said ensuring the resilience of the U.S. power grid doesn’t simply mean handing out subsidies for coal and nuclear plants.

“Coal and nuclear want resilience to be a code word to subsidize them when they can’t compete,” said Shelk, whose group represents power generators such as NRG Energy Inc. and Dynegy Inc. that sell their supplies into wholesale markets. “That’s a warped view of resilience. All fuels, technologies and attributes should be considered together.”

Advanced Energy Economy, a group that promotes solar and wind, said the report “seriously overstates” the challenges associated with new energy resources. The American Petroleum Institute meanwhile noted that natural gas is now the source of more electricity in the U.S. than any other fuel and has cut consumers’ energy costs “without government mandates and subsidies.”

One way that the federal government can assist uneconomic coal plants is to compensate baseload plants for the resilience they offer the power grid, according to the report. The authors recommend that the Federal Energy Regulatory Commission, which oversees power markets, study ways in which those reliability attributes can be appropriately valued. That could include the creation of new pricing mechanisms or changing the agency’s approach to energy price formation, the report says. 

Previously: Renewable Energy Not a Threat to Grid, Draft of U.S. Study Finds

That recommendation echoes comments recently made by Neil Chatterjee, who was tapped by Trump to temporarily lead the energy commission. Chatterjee said last week that coal-fired plants are a crucial part of America’s energy mix that needed to be “properly compensated to recognize the value they provide.”

The commission is already weighing whether it should redesign market rules to better account for state policies encouraging the use of zero-emissions power. New York and Illinois recently established subsidies for nuclear power and others are considering doing the same.

Chatterjee on Thursday characterized the report as "important," saying in a statement that FERC "will remain focused on these and other issues that are critical to maintain the nation’s competitive wholesale electric markets and keep the lights on.”

The "study reaffirms our view that nuclear energy is a key and necessary contributor to a clean, reliable and resilient electric grid, which now is more important than ever," Nuclear Energy Institute Chief Executive Officer Maria Korsnick said in a statement. 

Why Nuclear Power, Once Cash Cow, Now Has Tin Cup: QuickTake Q&A

One regulation cited by the report requires coal plant operators to apply for a permit before making substantial upgrades. That requirement “creates an unnecessary burden that discourages rather than encourages” investments, the report says.

Since ordering the study in April, Perry has taken a deliberately hands-off approach and was only briefed on its findings Tuesday morning, agency officials said. The report was overseen by Travis Fisher, a senior adviser at the department, and Brian McCormack, Perry’s chief of staff.

— With assistance by Tim Loh, Jennifer A Dlouhy, and Mark Chediak

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE