Adding solar and wind power to the electricity grid poses both technical and financial challenges. Specifically, what alternative supplies of electricity will come online when the wind falters and the sun is down, and how will those sources of energy be paid for?
Energy Secretary Rick Perry is asking the Federal Energy Regulatory Commission (FERC) to address those issues in the next 60 days.
Electricity produced from subsidized wind and solar power generally gets purchased first, since it is cheaper than supplies from conventional coal, gas, and nuclear power plants. Wind power has been so abundant in some markets that at times the generators paid people to take their electricity, since they still make a profit from their subsidies. How can conventional generators compete against not just free power, but power that consumers are being paid to take?
The result: As more subsidized renewable power has been added to electricity markets, along with power produced by burning cheap fracked natural gas, conventional power plants have been unable to pay for themselves and are increasingly being shuttered. Good riddance to fossil-fuel and nuclear dinosaurs, right? Not so fast. Renewable power is highly variable, so back-up generation is needed to ensure that power still gets to consumers. As conventional power plants close down, there is less capacity available to cover renewable power shortfalls. This could produce power outages and price spikes.
In his letter, Perry asks FERC to "issue rules to protect the American people from the threat of energy outages that could result from the loss of traditional baseload capacity."
The upshot is that FERC is now supposed to figure out a way to pay the owners of nuclear and coal power plants to keep them available to generate power when renewable supplies prove inadequate. In other words, electric power rates to consumers will go up in order to make capacity payments to the owners of mostly idle conventional power plants. Proponents of renewable power generally fail to include these costs in their rosy calculations.
Graham Richard, head of the clean energy business lobbying group Advanced Energy Economy, calls the secretary's proposal a "Perry energy tax." He argues that the rule "would impose additional costs on consumers, lock in old technologies, and do nothing to make the electric power system more reliable or more resilient."
"Nuclear and coal units have been rendered wasteful and inefficient because developments in energy markets—low-cost and flexible renewables, flatlining power demand and inexpensive natural gas—have made them too costly and obsolete," claims Tyson Slocum, director of the activist group Public Citizen's Energy Program. "It is an abomination for the U.S. Department of Energy…to demand that consumers now pay to keep these nuclear and coal power plants operating for some phantom, purported 'resilience' benefit."
Not surprisingly, conventional power generators see more merit in the initiative. "We welcome Secretary Perry's bold, decisive and proactive request for swift FERC reforms to address the threat to U.S. electric grid resiliency from premature retirements of fuel-secure traditional baseload resources, such as nuclear energy," says a press release from the U.S. Nuclear Infrastructure Council.
Environmental Progress, the pro-nuclear climate activist group, took this angle: "The Trump administration can't say it, but Environmental Progress can: the rule could be a huge win for the climate." Why? Because nuclear power plants generate carbon-free electricity and capacity payments would help prevent them from being shut down.
Governments have been meddling in electric power markets ever since there have been electric power markets. "Nearly every aspect of electricity is now heavily regulated by multiple federal agencies," points out the Institute for Energy. Government regulation "is supposed to protect the consumer, but in practice it often benefits other interest groups—or the utilities themselves—at the expense of consumers."
Maintaining grid resilience is a real issue, but there is more than a whiff of crony capitalism about Perry's initiative to establish capacity payments for conventional power generators. Better to roll back market distortions than to pile new distortions upon the old.