Electricity

Energy Secretary Rick Perry Orders Regulators to Figure Out How to Keep Renewables from Crashing the Electric Power Grid

New energy market distortions to fix old energy market distortions

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Areeya Slangsing/Dreamstime

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.

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66 responses to “Energy Secretary Rick Perry Orders Regulators to Figure Out How to Keep Renewables from Crashing the Electric Power Grid

  1. 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.

    Are the market distortions in favor of “clean power” legislative law? I’d imagine it is much easier to mitigate problems caused by laws with administrative/regulatory changes than repealing the sacred and holy ” law of the land”

  2. Solar and wind are not renewable power in any real sense of the word. Solar panels wear out. Wind generators break and wear out. I don’t see how feeding an endless stream of solar panels or turbines into an electric plant is any more renewable than feeding coal or natural gas into it. Both sources of power consume resources.


    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.

    So renewable doesn’t work and doesn’t make any sense. If you still have to have back up generation to cover the times when the sun doesn’t shine or the wind doesn’t blow, you are not gaining anything.

    We have a virtually endless supply of coal, natural gas and uranium to produce electricity in this country. It is utterly irrational to try and replace that with solar and wind in the name of what amounts to religious belief in global warming and various bizarre nature cults known as environmentalism.

    1. The accelerating wind and solar build out isn’t about environmentalism anymore and it’s a big mistake to hold onto that outdated view. It’s purely an economics story now.

      For every green pushing renewables, there are two wall street bankers pushing even harder. Wall street understands the economics. They know solar and wind have recently become the lowest cost generation sources and that means they offer the biggest investment opportunity.

      In the US, coal and nuclear crony capitalists are hoping they can leverage lingering anti-green emotion on the right to slip through one last handout. They know they’re facing a slow, steady,and certain decline over the next few decades.

      To see the future, look to places like China, India, and South America. In these places, subsidies aren’t part of the story at all, yet renewables are undercutting everyone else on cost.

  3. Heh. Nice pic and alt-text.

  4. “what alternative supplies of electricity will come online when the wind falters and the sun is down”

    The wind is always blowing somewhere. The sun doesn’t actually ‘go down’ but continues to shine elsewhere. We can exploit this by integrating unconnected power grids, converting them to direct current as well for more efficiency.

    1. mtrueman|10.2.17 @ 11:04AM|#
      “The wind is always blowing somewhere.”

      mtrueman|8.30.17 @ 1:42PM|#
      “Spouting nonsense is an end in itself.”

      1. “The wind is always blowing somewhere.”

        Of course this is nonsense. If the wind stops blowing in one place, it stands to reason that it stops blowing everywhere. Similarly, with sun. It ‘goes down,’ you see.

        1. You can only transmit electricity about a thousand miles at most. So, your solar plants in China are not going to help the US grid when it is dark here and light there. Same with wind. Sure, the wind is always blowing somewhere, but it might not be blowing very close to you. Moreover, building enough wind generators such that enough of them are catching the wind that is blowing to provide reliable power is a hugely inefficient use of land and resource. Just build a coal, nuclear or gas plant and be done with it.

          1. You can transmit further than that with HVDC. Note I have deliberately not said anything about cost in that statement.

        2. mtrueman|10.2.17 @ 11:39AM|#
          “Of course this is nonsense”

          First, yes it is. You’re too stupid to understand, so I’m not going to waste time telling you why.
          Secondly, YOU are the one who admits to peddling nonsense and you continue to prove it.
          Get lost.

          1. “First, yes it is. You’re too stupid to understand, so I’m not going to waste time telling you why.”

            By all means save your breath. We all know the earth is flat.

    2. DC? Dude, Edison lost that argument 100 years ago.

      How would you use DC to get more efficient transmission?

      P = (I)^2*R. The whole reason AC is used, is that you can use transformers to send out the electricity at a very high voltage, with low current, and then use transformers to step the voltage down and get more current.

      1. Actually Edison eventually “won”. High voltage direct current is now used on many long distance lines. See the wikipedia page on the subject “High-voltage direct current” for a list of the advantages. (Includes lower peak voltage for same equivalent RMS value, and no need to sync the cycles, which is a big issue when merging widely scattered power plants.)

        1. Indeed. DC is more useful for most things we do. AC won because it can be transformed easily so you transmit at 24kV and step it down all the way to 240 at the residential level. Relatively efficient at all stages. But all of this was before we had cheap and reliable power semiconductors. Now it’s no big deal to buck or boost DC lines to whatever you want at 95%+ efficiencies and you don’t have to deal with any of that phase nonsense which is a huge headache.

          1. [Checks box on daily dose of neat info]

          2. “DC is more useful for most things we do.”

            But if you’ve got enough money, you can rent the services of a science writer who’ll tell you on a weekly basis that AC is the electricity of Freedom and anything else is either econazi, feminazi or commienazi.

      2. “How would you use DC to get more efficient transmission?”

        I see a much bigger problem. When the wind stops blowing or the sun stops shining in one place, it stops blowing and shining everywhere.

  5. What incentives do power companies have to have a fully resilient grid? Yes, they have some incentive because if they can’t deliver the power, they can’t sell it. The incentive is a strict calculation of the cost of the resiliency versus the cost of a disaster times the probability of it occurring. The market gives you a strict cost-benefit analysis of money and risk.

    That is nice and all but the population might be a bit more risk-averse than the strict cost-benefit analysis would. No one in the power company is going to die if the power goes out. Moreover, the power company isn’t going to be liable for the various deaths and harms that result from an extended blackout. The power company is only on the hook for the lost income for the power it couldn’t sell and the cost of repairing the damage.

    So the cost-benefit analysis that the market is causing the power company to do, isn’t really accurate. There are all kinds of second-order harms that result from losing power the cost of which the power companies do not bare and this have no incentive to take precautions against. So the government stepping in and telling them to build a more resilient grid than they otherwise would really isn’t distorting the market. Or to the extent it is distorting the market, it is doing so to take into account harms and costs that the market isn’t taking into account.

    I love markets as much as anyone else. But the results they produce are not the word of God and are not infallible.

    1. The way competitive power generation markets work, in addition to selling their power, generators can ‘bid’ on what’s called firm capacity. Under this system, grid operators (usually an ISO) decide how much capacity they want to have at the ready at any time. Generators who can be flexible and turn on when needed (eg not solar and wind) are able to bid into these markets. The grid operators accept the lowest bids up to the point where they have enough capacity to handle cases when wind and solar aren’t around. This is how competitive markets work today.

      This new rule is basically a handout just for coal and nuclear. Instead of just using capacity markets, which grid operators say are working fine, they’ve redefined things to include “reliability” and made that contingent on the generator having 90 days worth on fuel onsite. This is a needless extra constraint that’s designed to make sure natural gas generators can’t get in on this new subsidy.

      Imo, it’s complete and total b.s. This is the definition of picking winners (coal and nukes) and losers (natural gas). It’s hugely market distorting and it’s going to cost ratepayers a bundle. It’s the very definition of crony capitalism.

      1. Again, the market doesn’t solve for the risks associated with the grid, because the power companies don’t bare all of those risks. So the fact that this requires more than the market right now would do, means nothing. That is the entire point.

        1. I think you might have missed my point.

          Under the current system, competitive power markets include something called “capacity auctions.” These auctions are run by grid operators ahead of time to assure the grid will always have enough capacity.

          Conventional generators bid in these auctions with a promise to provide power when grid operators need it in exchange for a fixed payment. This is a separate payment over and above the money they make selling power.

  6. First of all, why is there a federal agency for this? Why is this even a federal issue? And secondly, weren’t the regulated utility companies granted monopolies because there was no way the free market could do the job of providing basic utilities to everybody? That’s part of their charter, providing adequately for everybody regardless of the marginal costs. That’s why they’ve got guaranteed profit margins and exactly why they’re inefficient, over-priced bureaucratic behemoths who couldn’t innovate their way out of a paper bag – they’ve got no incentive to do shit about shit. So now you’re going to get somebody who’s three times removed from any incentive to do shit about shit to do shit about shit? Good luck with that plan, commissar, but it ain’t gonna work. How about you quit subsidizing “renewables” to ease up on the pressure and kick a few power company execs in the ass and tell them to get on the stick for preparing for the day renewables really are a legitimate part of the power mix? Maybe set up a separate transmission utility and let private companies supply the juice?

    1. Electricity is interstate commerce. So, this actually is a legitimate area of federal regulation. The electrical grid is one of the best examples of real interstate commerce there is.

      As far as resiliency, I explain it above. The power companies do not and should not bear the full cost of a blackout. As a result, their market incentives to have a resilient grid do not reflect the full cost of the grid going down. So, this is one of those rare cases where government action is actually warrented.

      1. Except grid operators already have a competitive bidding system to assure they have enough firm capacity whenever it’s needed. They are happy with the current system, which pays coal, nukes, natural gas, and hydro, but not wind and solar.

        This new system changes the rules so that only coal and nuclear can get subsidies. It would do that by imposing an artificial rule of “generator must have 90 days of fuel onsite” to qualify for the subsidy. This new provision purposely excludes cheap natural gas from being part of the subsidy.

        This is guaranteed to cost ratepayers a huge amount since coal costs 1.5 to 2 times natural gas and nuclear costs 2 to 3 times natural gas, just for operating expenses on already built plants.

        1. It doesn’t pay wind and solar because they are already subsidized and usually have preferential dispatch rules, i.e. you must take them before other sources.

  7. I totally forgot Trump gave him a job…

    1. He wasn’t allowed to issue a press release until he let Trump give him purple nurples.

    2. He did run Texas for 8 years, which produces more energy than most countries. I didn’t understand the complaints about him being unqualified. It’s not like the director needs the technical knowledge.

      1. He didn’t run shit in Texas, you must be thinking of the Lieutenant Governor.


  8. “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.

    So Tyson is just fine with getting rid of all subsidy across the board instead of being against this particular subsidy?

    “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.”

    Oh…nevermind….I guess no one told him that so-called ‘Renewables’ are cheap precisely because of subsidy. What’s good for the goose is apparently not good for the gander.

    1. The best part of that is his reference to the “phantom, purported resilience benefit’. Excess capacity means more resilience. I guess this guy really thinks the laws of math and physics do not apply because of the magic word renewables, which of course are anything but renewable.

      1. Yeah, I’m definitely not on board with losing power because there’s only a light breeze or it’s a cloudy day. It’s not hard to understand what is meant by ‘resilience’ but at the same time there might be a better, more descriptive word that could be used. Personally, I’d use the word ‘Consistency’. We want consistent power, regardless of how it’s generated.

        Waterfalls, for example, are consistent. The wind and sunshine are not. It’s really not that hard to understand at a baseline level.

        1. This rule isn’t about consistency. There’s already a system to pay generators extra money if they can commit to providing firm capacity when grid operators need it. This system is many years old and grid operators think it’s all they need to keep the grid reliable.

          The ‘resiliency’ thing is brand new and isn’t about handling ebbs and flows of wind and solar. That’s what the current system of capacity payments is all about and it works great.

          The new system changes the rules so subsidies aren’t available to everyone who can promise firm capacity, but rather, they’re only available to generators that have 90 days of fuel stored on site. It’s specifically designed to exclude natural gas plants from qualifying as part of the resiliency strategy.

    2. Oh, and lets not forget that the interveners such as the Union for Concerned Scientists and Mothers for Peace have won the battle to regulate the shit out of nuclear.

      I am in regulatory compliance at a commercial nuke plant, and the shit all plants spend time dealing with is WAY down on the safety scale. WAY DOWN.

      We are being regulated by inspection, and it is a ratchet. It only gets tighter, never looser.

      1. The anti-nuclear movement was created as a way to give jobs to the various leftist activists who no longer had jobs after the Vietnam war ended. No kidding. No one ever had a problem with nuclear power before the late 1970s. It was considered the miracle technology it actually is.

        Then the left needed a cause. So, first, they got Carter to ban recycling of uranium fuel rods in the name of stopping nuclear proliferation, which created the high-level waste disposal problem. Then, they got Hollywood to make the China Syndrome and ensure the public was completely misinformed about the real risks of nuclear power. They had a big rock concert in Madison Square Garden, had the media lie about Three Mile Island and that was it. The fuckers basically killed nuclear power and deprived the country of what should have been one of the great inventions in mankind’s history.

        1. I think that sentiment changed after Three-Mile Island and Chernobyl. There is at least a little evidence that the true dangers of Nuclear were purposefully obfuscated, but regardless it is our most potent energy generator at the moment. Not using it more is stupid, especially when considering mostly laughable alternatives like sunshine or the wind.

          Those might have worked if were still in the 1800’s and living a mostly agrarian lifestyle, but unfortunately for the left industrialization happened. There is no going back unless you want to move to a commune in Oregon or California.

          1. The death count due to operating civilian nuke plants in the west is an easy number to remember: 0. Even at TMI the neighboring reactor ran for decades after the meltdown even. The risks of a soviet style graphite core without containment were well known and unfortunately realized. Nuclear power remains the lowest deaths/kWh of any energy source including greed energy.

            P.S. i just looked it up. The undamaged reactors at Chernobyl also ran for years after the disaster.

          2. Nuclear is great if you don’t mind paying two or three times more for power. It’s more expensive than ANY other generation source on the planet by a long shot.

            1. It is only that expensive because government regulation makes it that way.

            2. Bullshit. You want expensive? Go green.

              1. I’ve posted this before, but in case you missed it…

                Lazard Levelized Cost of Energy Analysis
                http://bit.ly/2gV6fBw

  9. So, subsidies are increasing risk. We also don’t want to increase cost.

    Hmm… a puzzling state of affairs.

    If only there was a path forward that reduced cost and allowed the market to adjust the risk in a more cost efficient manner…

    1. Since power outages have enormous costs that are not borne by the power companies, how is the market supposed to adjust for this risk? You can’t expect the market to cause power companies to adjust for risks they don’t bear. And if the power companies do not adjust for the full risk associated with a blackout, who will?

      1. I suppose by eliminating subsidies, and letting the power companies adjust baseline mix by adding back in now more competitive and reliable coal and nuclear? A plan just crazy enough to work…

        1. That doesn’t answer the concern. Whether a power company spends the money to make its system more resilient is a simple question of cost versus risk. They will invest in their grid as long as the cost to do so is less than the cost of a potential blackout times its probably. Power companies do not bear the full cost of a blackout. They only bear the cost of repairing the system and the lost opportunity to sell power. So, they are not going to create a grid whose resilience fully reflects the risks associated with a blackout. They have no reason to. And no amount of deregulation is going to make them do so because the market doesn’t make them bear the full costs of a blackout.

          So getting rid of the subsidies is great. But it isn’t going to solve the problem. It just won’t.

          1. J: Won’t they be liable for failures to fulfill their contracts to customers?

            1. No. Every contract contains an act of God clause. Those contracts become moot by virtue of impossibility. Ron, you can’t sue the power company for the contents of your refrigerator that was destroyed when the power goes out. Power companies don’t bear the full risk associated with blackouts. So there is no way the “market” is going to properly adjust for such risk. It is just how it is.

              1. That’s not true. An act of God is actually defined. A squirrel shorting a transformer or clouds obscuring a solar panel can be planned for and are enforceable.


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  11. First, Sec. Perry’s order is NOT about capacity payments at all. At least not in the way payments for providing firm capacity have been framed.

    Capacity payments are already part of most competitive market rate designs. Basically, coal, nuclear, ng, and hydro get extra revenue from promising to provide capacity when it’s needed. This isn’t new. It’s how things work now.

    The controversial thing about this new order is that it goes way above payments for capacity. The order wants rules to be carefully constructed so the subsidies only flow to coal and nuclear, and not to natural gas. The main provision is a ‘local fuel storage’ provision that locks natural gas plants out of the subsidy.

    The other part of this that’s crazy imo is that the rule doesn’t just want to offer an extra payment, it basically promises to reimburse plant owners for ALL COSTS plus a return on investment. It basically undoes the entire competitive generation market for just these 2 sources. Everyone else has to compete, but coal and nuclear get all of their costs covered by ratepayers.

    One thing that’s absolutely certain is this will HUGELY increase rates in these markets. Nuclear is usually 2 to 3 times the cost of natural gas (just for opEx). Coal is usually 1.5 to 2 times natural gas (again, just for opEx). The proposed rule will force ratepayers to cover these crazy high uncompetitive costs.

    1. You’re gonna need a citation to back up those opex cost claims. And that had better include your assumptions on fuel costs per mmbtu.

      1. Why do you think natural gas is always getting scheduled and coal and nuclear aren’t? It’s all about opEx. Grid operators schedule the resources with the lowest marginal cost first and natural gas always wins.

        1. Yeah, that’s not a citation. Actually nat gas generation fell in 2017 and coal increased to become #1 again because nat gas isn’t viable at the $3 per mmbtu it was getting. Natural gas peaking plants are the MOST expensive generating solution but they don’t have the startup lag of thermal baseload. New generation is going to nat gas (CCGT) because it has the shortest construction time and the lowest capex, not necessarily opex (although it’s obviously competitive there).

          If you want cheap, reliable power then fully depreciated nuclear is the way to go which is why your generic claim of higher opex was bunk.

          1. “If you want cheap, reliable power then fully depreciated nuclear is the way to go which is why your generic claim of higher opex was bunk.”

            Again though, fully paid off nuclear plants all around the country are shutting down even though they could keep operating for years more. My understanding is that it’s because they’re not getting scheduled enough because natural gas has been hugely built out and has lower opEx.

            Do you have any references/links for opEx of nuclear?

            1. Links will have to wait for when I’m home. Phones are not conducive for that. But generally start with EIA if you can’t wait.

              1. As I think about this, it may be a case where using averages are confusing things.

                Perhaps on average coal and nuclear opEx aren’t so bad, but older and less efficient plants that make up a significant amount of capacity are much more costly to run than average.

      2. Actually, you’re right about my comment above being wrong for opEx. The costs I used are all-in, not just opEx. I’d edit my post if I could.

        Still though, even on an opEx only basis, coal and nuclear are significantly higher than natural gas in much of the country and that’s what’s causing their economic hardship.

        1. No they are not. Coal is competitive at anything over about $3.50 for nat gas which is why, barring market interference, coal is going to be around for a long time.

          1. If that’s true, why is coal hurting so bad when ng generators are doing fine?

            1. What part of #1 didn’t you understand? What part of capex for new plant didn’t you understand?

              1. That didn’t answer my question. If nuclear and coal have lower opEx than natural gas, why are they getting scheduled so much less than ng?

              2. If coal is gaining again, then why does it need a special subsidy that’s not available to natural gas to keep plants from shutting down.

                As I understand it, all coal generation isn’t created equally and the plants shutting down have much higher operating expenses than average.

  12. One angle that isn’t getting much press here is that this rule is basically the trump administration sending the Koch brothers a giant f u for not supporting him.

    Everyone is framing the order as being anti-renewables, but really it’s anti natural gas more than anything else.

    If the rule actually goes into effect, it will cost natural gas generators and natural gas producers a bundle.

  13. Ron: “As conventional power plants close down, there is less capacity available to cover renewable power shortfalls. This could produce power outages and price spikes.”

    Ron, please please please read up on how competitive power markets currently work in the US.

    The main thing you missed is that the design for competitive power markets in the US includes something called capacity auctions. This is a system where grid operators determine how much guaranteed capacity they want to have “always available” and allow generators to bid on promising to be there when they’re needed. This is how the grid works today and grid operators believe this system works fine. No one except politicians is worried about wind and solar ‘crashing the grid’.

    Generators who can respond to grid operator scheduling requests (eg coal, nuclear, ng, hydro) can bid these auctions, while solar and wind cannot. This secondary revenue stream to conventional generators is what assures us that the grid will always have enough power available when a plant trips offline or when wind and solar can’t produce.

    1. Here’s a decent link for how capacity markets work:
      http://bit.ly/2g5YV8P

      Here’s a link about markets for ancillary services (eg synchronized reserve, frequency regulation, black start):
      http://bit.ly/2xWRwlI

      Again, this is how energy markets already work today. These services are already priced using market mechanisms (bidding auctions).

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