DoE’s Coal and Nuclear Subsidy Could Cost U.S. Economy $10.6 Billion Per Year. Is America Great Again Yet?

The U.S. Department of Energy’s Notice of Proposed Rulemaking (NOPR) directing the Federal Energy Regulatory Commission (FERC) to subsidize coal and nuclear generation is opposed by nearly every side of America’s electricity industry – from market operators and conservative analysts to a bipartisan group of former FERC commissioners – except for those who would directly benefit from it.

Reasons for opposing the NOPR range from potentially destroying wholesale power markets, to free trade principles, or insufficient review time, but beyond Rick Perry suggesting the proposal’s price was equal to “the cost of freedom,” DOE hasn’t quantified the NOPR’s economic impact or which plants it would subsidize.

Research from Energy Innovation (EI) and the Climate Policy Initiative (CPI) finds DOE’s NOPR could cost up to $10.6 billion annually, and would be paid by U.S. businesses and residents.  This subsidy would flow to roughly 10 companies and 90 power plants, and harm cheaper generation from natural gas and renewables.

Wrecking U.S. power markets won’t improve grid resilience

DOE’s NOPR is the latest Trump Administration attempt to prop up older, inefficient coal and nuclear generation that utilities find increasingly uneconomic to operate against cleaner, cheaper generation and efficiency resources.

The NOPR directs FERC to develop new tariffs compensating generating units with a 90-day on-site fuel supply for “operating and fuel expenses, costs of capital and debt, and a fair return on equity and investment” – i.e. coal and nuclear facilities.

The motivation for this subsidy is establishing grid “resilience” to ensure electricity service during emergencies, extreme weather, or disasters – but the NOPR wouldn’t improve power supplies. Recent analysis shows fuel supply issues were responsible for only 0.00007% of power outage hours between 2012 and 2016. Consider 2014’s Polar Vortex and 2017’s Hurricanes Harvey and Irma, when fossil fuel and nuclear generation was forced offline despite ample supplies of on-site fuel supplies.

What the NOPR would do, however, is upend America’s wholesale power markets. In these markets, electricity demand is met by the cheapest-available supplies, but under DOE’s proposal, power plants would recover costs through subsidies instead of through energy market sales, and consumers would pay billions in subsidies for generation units that are too expensive to operate at today’s prices. Perhaps most troubling, the NOPR’s vague language could lead to consumers being forced to not only cover coal and nuclear plant operating costs, but also ensure they remain profitable.

“The DOE proposal…will likely allow coal plants to act as price-takers, knowing all their operating and capital costs are covered,” said CPI co-author Andrew Goggins. “Such a scenario would not only discourage new, low-cost renewables from entering the markets – making future electricity more expensive – but it would negatively impact the profitability of existing gas and renewable generators without providing any savings to consumers.”

Read more at DoE’s Coal and Nuclear Subsidy Could Cost U.S. Economy $10.6 Billion Per Year.  Is America Great Again Yet?