Dueling studies probe costs of DOE’s coal, nuke rescue plan

Source: Peter Behr, E&E News reporter • Posted: Monday, July 23, 2018

The Department of Energy’s draft plan to subsidize struggling coal and nuclear plants as insurance against cyberthreats and natural disasters would cost $10 billion to $17 billion a year, according to a new analysis issued by energy interests fighting the administration’s proposal.

The analysis by the Brattle Group added that if the White House adopted the DOE plan and it gave at-risk coal and nuclear power operators a return on capital as well as an operating subsidy, wholesale electricity costs could increase by $20 billion to $35 billion a year.

A draft of the DOE plan, which was leaked on May 31, has polarized the nation’s electric power sector, winning praise from coal industry supporters of President Trump, support from the nuclear industry “and antipathy from nearly everyone else,” as the Brattle report put it.

“The magnitude and range of these estimates indicate the significant impact of yet-to-be determined policy design parameters and the uncertainty of the scope and impact of those choices on cost,” Brattle said. “Arresting the retirement of uneconomic generating assets in the current market environment will likely prove quite costly.”

The Brattle authors were upfront with the problems they faced, along with everyone else outside DOE, in trying to assess the costs of keeping at-risk coal and nuclear plants operating, because DOE has offered no details of how plants would be selected for support, how subsidies would be calculated and how they would be paid for.

Energy Secretary Rick Perry said last month that the calculation was still under study. “We don’t have a dollar estimate at this particular point in time. There’s actually a piece of work being done at this point in time; hopefully, in the not-too-distant future, we can hold that out to you,” he said during the World Gas Conference (Greenwire, June 28).

To get the subsidy, would power plants have to announce plans to retire? Would they have to prove how much money they were losing? What if a utility changed its mind and pulled a plant off the retirement list and kept it running? Would such changes force other plants into the red, and would they then qualify for support? Brattle asked. “All of these choices will affect the cost and efficacy of the program,” it said.

Some energy industry sources speculate that a DOE plan would initially focus on a list of coal and nuclear plants that have declared an intention to retire, published by the department’s Energy Information Administration.

Currently on that list are seven nuclear power reactors and 71 coal-fired generators with a total summertime generating capacity of 25,152 megawatts. Their retirement dates range from this year through 2025, although just under 23,000 MW of capacity would be retired by the end of 2020. Total U.S. capacity for coal plans is 235,800 MW and 99,100 MW for nuclear, Brattle noted.

Keeping open the plants that have announced retirements by the end of 2020 would cost around $1.2 billion, based on Brattle’s calculations.

Fractured debate

The coal industry weighed in yesterday with its own analysis from an opposite perspective. A study by Energy Ventures Analysis for the National Mining Association picked three large coal-fired plants in the PJM Interconnection region, running from the Mid-Atlantic states to Chicago, and calculated that their retirements at the beginning of 2019 would raise costs of power in PJM by $2 billion.

The estimate assumes that losing those plants would require operating more inefficient, expensive power plants in PJM, pushing up daily prices.

Keeping the plants operating would require subsidies totaling $130 million a year, much less than the impact of their retirements, EVA concluded.

The Brattle study, using a different method of calculation, indicated a subsidy requirement of twice that level. Brattle authors estimated that on average, U.S. coal and nuclear plants that lose money would need $50 per kilowatt-hour to cover operating shortfalls.

The report was financed by the Advanced Energy Economy, American Petroleum Institute, American Wind Energy Association, Electricity Consumers Resource Council, Electric Power Supply Association and Natural Gas Supply Association.

The fractured policy debate over extreme threats to the power grid was illustrated by two comments, one yesterday by one of the Brattle report sponsors.

“Giving aging power plants that are not needed to keep the lights on $34 billion just to exist — that’s money for nothing,” said Malcolm Woolf, senior vice president for policy at the Advanced Energy Economy organization. (The $34 billion figure is based on a two-year subsidy at Brattle’s $17 billion annual estimate.)

DOE’s plan addresses what the power grid would need to withstand extraordinary natural disasters or a state-sponsored cyberattack, not “keeping the lights on” in ordinary day-to-day operation.

Perry came at the question from the opposite side in his comments at the World Gas Conference. “You cannot put a dollar figure on the cost to keep America free, to keep the lights on,” he said.

But DOE hasn’t made its case yet that propping up old coal and nuclear plants was the best way to do that. Its initial plan to subsidize money-losing coal and nuclear plants was shot down by a unanimous Federal Energy Regulatory Commission this year and rejected by the grid’s regional transmission operators.

Brattle principal Metin Celebi said his firm’s study did not deal with the larger cost-and-benefit calculations of the grid resilience challenge. But scrapping over costs of subsidies is not what’s needed, he said.

“The right policy is to engage in a stakeholder process to identify the most important threats and disasters” that the grid must be prepared to withstand, he said.

Then figure out which kinds of power plants and transmission configurations provide the right insurance against those threats, and reward them accordingly.

“You need to start there,” Celebi said. “That debate needs to happen instead of hasty decisions to protect one or two types of generation plants from retirement.”