DOE report blames natural gas for closures

Source: Hannah Northey and Peter Behr, E&E News reporters • Posted: Thursday, August 24, 2017

A long-awaited Energy Department staff report on electricity markets and reliability singles out natural gas — not renewables or environmental regulations — as the leading driver of coal plant closures in this decade, challenging the Trump administration’s case for saving coal.

“The biggest contributor to coal and nuclear plant retirements has been the advantaged economics of natural gas-fired generation” fueled by the shale revolution, the report says.

The 187-page report, which DOE released tonight, was ordered by Energy Secretary Rick Perry in April to review the closure of “baseload” coal and nuclear plants and “market-distorting effects of federal subsidies that boost one form of energy at the expense of others.”

But the staff report assembled a more comprehensive review of challenges facing the U.S. power grid, from cheap natural gas to fast-moving new generating technologies. While electricity networks are performing reliably now, future resilience cannot be taken for granted, DOE said.

The preparation of the Trump administration’s first comprehensive energy policy review lit fires under Washington’s energy lobbies as those who feared or welcomed President Trump’s thumping advocacy for the coal industry fired salvos at each other.

The final report, a month late in delivery, makes no definitive proposals. Its most political input is the absence of any mention of climate change. A DOE official today said the study was not meant to create a fuel fight.

Several key recommendations are directed at the Federal Energy Regulatory Commission, including the need to review whether electricity markets are delivering secure and resilient electric power as change disrupts grid networks. A DOE official said they discussed the report with FERC today, adding that the policy recommendations could be used to nudge the agency into reviewing market price rules that are designed to give consumers low power prices, but may not incentivize future reliability investment.

The report questions whether coal and nuclear power plants should receive extra compensation because their fuel supplies are on-site but doesn’t make an explicit recommendation on that point.

Perry himself sidestepped direct recommendations in a cover letter today, saying that it’s “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. It is important for policy makers to consider their intended and unintended effects.”

DOE staff today said gas is by far the largest factor driving “baseload” plant closures, which Perry has defined as coal and nuclear units. But also in the mix is an anemic growth in demand for power, environmental regulations, and the operational and financial challenges some plant operators face when ramping up and down to accommodate a growing number of wind and solar units.

When asked why the report didn’t have statutory and regulatory recommendations like the Quadrennial Energy Report issued by the Obama administration, officials said the staff report isn’t an interagency exercise and they didn’t want to trigger an Office of Management and Budget overview given the tight time frame.

The report, which also calls for revisiting nuclear regulations and permitting and siting requirements for new gas and power projects, will now be open for public comment, according to DOE.