A much-anticipated Energy Department study of the electric grid released Wednesday night points to abundant natural gas from fracking as the leading cause for the decline in coal and nuclear power plants and calls on federal agencies to make changes that would stave off the loss of more coal-fired and nuclear power plants.
It does not blame solar and wind energy for the drop in those power plants as critics had anticipated. Nor does it completely blame Environmental Protection Agency rules for the decline.
The “top driver is the low cost of natural gas,” said an Energy Department official briefing reporters Wednesday afternoon. But that doesn’t mean renewable energy hasn’t had an effect, officials said.
Because solar and wind are intermittent, more of a burden is placed on fossil fuel generators to fill in the gaps in electricity production when the sun is not shining or the wind is not blowing, the officials said.
“The recent and unprecedented rise of natural gas as a top electricity generation resource, the increasing [renewable energy] penetration, the flattening of electricity demand growth, and a host of policy issues – regulations, mandates and subsidies at the state and federal levels – have negatively impacted traditional baseload generation, particularly coal and nuclear power plants,” according to the findings. Baseload plants are those that are able to provide power around the clock.
“Between 2002 and 2016, 132,000 [megawatts] of generation capacity retired – representing about 15 percent of the total 2002 installed base – and 390,500 MW of new capacity was added,” the report added. But the “biggest contributor to coal and nuclear plant retirements has been the advantaged economics of natural gas-fired generation.”
The report calls on the Federal Energy Regulatory Commission and the Environmental Protection Agency to make changes to stop the loss of more coal-fired and nuclear power plants.
The report says FERC, the nation’s lead grid regulator, should “expedite its efforts” with states, the large grid operators it oversees and others “to improve energy price formation in centrally organized wholesale electricity markets,” which the coal and nuclear industries have supported.
The industries see price formation, or how power plants are priced and valued in the FERC-overseen markets, as a good way to add value to their resources for providing stability, as for coal plants, and low carbon emissions, as for nuclear energy. That would make them more competitive with other resources such as natural gas.
“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,” said Energy Secretary Rick Perry. “It is important for policy makers to consider their intended and unintended effects. Federal and state policy makers must continue to work together in close consultation to address these important issues that have a deep impact on grid reliability and resilience.”
The study also recommends that FERC study efforts for “creating fuel-neutral markets and/or regulatory mechanisms that compensate grid participants for services that are necessary to support reliable grid operations,” and the Energy Department “should provide technical and policy support that strengthen and accelerate these efforts.”
The commission is part of the Energy Department, but acts independently of any Cabinet-level agency or the White House. It is not clear if receiving policy support from the Energy Department would undermine its independence.
An Energy Department official said it was “fair to nudge FERC.”
The report also recommends that the EPA allow coal generators to improve their efficiency “without triggering new regulatory approvals and associated costs.”
It encourages the agency to create “a regulatory environment that would allow for improvement of the existing fleet,” while the Energy Department pursues “a targeted R&D portfolio aiming at increasing efficiency.”
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