The Department of Energy recently released a highly anticipated assessment of the U.S. grid that did not find a clear link between retiring coal and nuclear power plants and reduced grid reliability. Now, the agency is asking federal regulators to presume that’s the case, and create a rule that could provide coal and nuclear plants with additional financial support -- potentially at the expense of natural gas, solar, wind and other alternatives.
In a Thursday letter and notice of proposed rulemaking (NOPR) filed with the Federal Energy Regulatory Commission, Energy Secretary Rick Perry asked the agency to take up a rule to “ensure that certain reliability and resilience attributes of electric generation resources are fully valued.”
Specifically, the NOPR singles out the need for new pricing methods to deal with the “premature retirements of power plants that can withstand major fuel supply disruptions caused by natural or manmade disasters, and during those critical times, continue to provide electric energy, capacity, and essential grid reliability services.”
The proposed rule would “allow for the recovery of costs of fuel-secure generation units” with specific features, such as a “90-day fuel supply on site in the event of supply disruption,” that apply almost solely to coal and nuclear power plants today.
Friday’s NOPR comes out of a DOE grid reliability study, ordered by Perry in April, that many clean energy and environmental groups viewed as a Trojan horse for shifting federal policy away from supporting renewable energy and toward supporting coal and nuclear power plants. But the final report, issued in July, was far more nuanced than the politically charged document many had been expecting.
Even so, the study did come with several policy suggestions for the Federal Energy Regulatory Commission (FERC) that raised suspicions of the DOE’s intent to use it to support the Trump administration’s pro-coal agenda. “If one were looking for how this study could be used as cover for the administration's stated goal to save coal, it would be found in the discussion around the need to ‘establish market means to value or regulatory means to provide reliability and resilience-enhancing attributes,’” Shayle Kann, head of GTM Research, noted at the time.
And while the DOE doesn’t have control over issues of wholesale energy market price formation, its suggestions are likely to be taken up by a new set of FERC commissioners who’ve expressed similar views about coal’s value for grid reliability. Incoming FERC Chairman Neil Chatterjee said in a recent interview that “baseload power should be recognized as an essential part of the fuel mix,” and that "generation, including our existing coal and nuclear fleet, need to be properly compensated to recognize the value they provide to the system.”
The DOE grid reliability study did not conclusively show that coal and nuclear power plant retirements, at the scale they’re occurring today, will actually lead to “energy outages expected to result from the loss of this fuel-secure generation capacity.” However, that is the reason the NOPR cites for why FERC should act quickly on its request.
The NOPR’s primary linkage between these retirement trends and a threat to grid reliability comes from an analysis of the 2014 polar vortex. During this cold snap across the eastern U.S., spikes in heating energy demand came amidst cold-related power plant closures that could have led to blackouts, had several coal power plants now slated for future closure not been available to serve the load.
The analysis did not assess whether similar reliability features could be provided with a broader mix of generation resources, including natural gas, solar and wind power, or combinations of energy efficiency, energy storage, demand-side management, and other distributed energy resources. For comparison, in PJM’s analysis of the polar vortex, the RTO did mention the significant contribution of non-traditional generation resources.
On the topic of renewables, it's noteworthy that the DOE grid report from July made clear that flat energy demand and cheap natural gas are the primary drivers of power plant retirements, and not renewable energy mandates or incentives -- which is a widely held view in the energy industry.
Likewise, the NOPR accurately cites longstanding industry observations that wholesale market price formation rules don’t necessarily value grid resiliency, and references the multiple FERC investigations into the topic. Those include a big 2014 review of energy and ancillary services markets, and several more fine-tuned proceedings, like one that would require new generators to come with primary frequency response, or reforming shortage pricing or energy market offer cap policies.
But all of these FERC actions have arisen through its stakeholder process, where utilities, grid operators, states, renewable energy and environmental groups, consumer advocates and other parties have a chance to guide the discussion. Friday’s NOPR, by contrast, simply concludes its list of existing FERC actions by saying that “the continued loss of fuel-secure generation must be stopped,” and asks the commission to respond within 60 days, which offers little time for stakeholders to participate in the process.
Mary Anne Hitt, Director of Sierra Club’s Beyond Coal campaign, was quick to react to Friday’s NOPR by calling it an attempt by Perry to “force electricity customers to pay billions of dollars to prop up old, dangerous, and uneconomic coal and nuclear plants.”
“Perry is ignoring the fact that FERC is an independent agency tasked with listening to stakeholders to fix actual problems with the grid, not imaginary ones that only benefit a few uncompetitive industries,” she wrote. The NOPR asks FERC to disregard its standard stakeholder processes, and would violate the Federal Power Act, which “clearly states that FERC cannot favor one energy source over others in its rulemakings,” she wrote.
Todd Foley, senior VP of policy for the American Council on Renewable Energy, agreed that the NOPR uses “grid resilience as an excuse to prop up plants that have not been shown to be needed.” He also disagreed with the idea that on-site fuel power sources are critical for grid resiliency, noting that coal piles have frozen or flooded during severe weather events.
Michael O’Boyle of America’s Power Plan added that reliance on centralized fossil-fuel-fired power ignores the benefits of distributed energy, highlighting the devastation of Puerto Rico’s grid in Hurricane Maria as an example.
“Their grid went down completely and won’t be back for months, because it was essentially destroyed," he said. "Fuel on-hand won’t do a damn thing to help, except for large buildings with backup diesel generators. Rooftop solar and batteries, on the other hand, would have allowed communities to recover and retain essential services.”