LONDON, Oct 3 - U.S. Energy Secretary
Rick Perry’s attempt to save the coal and nuclear industries by
proposing a new grid resiliency rule is making for some odd bedfellows
across the energy sector.
The proposed grid
resiliency rule threatens to turn two of the Trump administration’s most
loyal groups of supporters against one another, as the gas and coal
industries square off for a fight over market share.
The disagreement over grid resiliency highlights some of the central tensions within the Trump administration’s energy policy:
*
The White House has celebrated the growth in domestic gas production
and associated reduction in greenhouse emissions but also wants to
rescue coal and nuclear producers.
* The White
House wants cheap electricity for households and manufacturing companies
but needs higher prices in the power market to support coal-fired and
nuclear power plants.
* The White House draws
support from pro-business groups that support a free-market approach to
energy production as well as those that want a more interventionist and
protectionist strategy. As a result, the president’s coalition of energy supporters is deeply divided over the proposed grid rule, with many of the administration’s most prominent supporters remaining silent or issuing only noncommittal statements.
CLEAN VERSUS DIRTY
Lobbyists
and journalists tend to write about energy policy as if it was a
Manichean struggle between clean energy (wind, solar) and dirty energy
(oil, gas, coal) with nuclear somewhere between (depending on the
observer’s viewpoint).
But the reality is much
more complicated and the proposed grid resiliency rule pits the coal and
nuclear sectors against an eclectic alliance of wind, solar and gas
companies as well as rural electric cooperatives and major energy
consumers.
Perry’s proposed rule has been
warmly welcomed by the Nuclear Energy Institute and the American
Coalition for Clean Coal Energy as well as power generators with lots of
coal and nuclear plants.
But it has already
drawn fierce push back from the American Council on Renewable Energy
(ACORE), the American Petroleum Institute (API) and nine other energy
industry associations from across the spectrum.
ACORE
and API have sent a joint letter to the Federal Energy Regulatory
Commission asking it to reject the secretary’s request for an expedited
rulemaking and allow more time for input (“Joint motion of the energy
industry associations”, Oct 2).
The letter’s other signatories
included the American Wind Energy Association, the Solar Energy
Industries Association, the American Public Power Association, the
Electric Power Supply Association, the National Rural Electric
Cooperative Association, the Natural Gas Supply Association, the
Interstate Natural Gas Association of America, the Electricity Consumers
Resource Council, and the Advanced Energy Economy.
The
Edison Eletric Institute, the top lobbying group for investor-owned
electric companies, did not join the letter but has issued its own
statement.
The institute noted the importance
of a balanced energy mix, including baseload sources, to maintaining
reliability and resiliency.
“While we are still reviewing (the
proposed rule) we believe competitive electricity market rules should
promote a diverse energy mix and should recognise the role that all
generation sources play in maintaining the reliability and resiliency of
the grid.” COAL VERSUS GAS
Growing
financial problems for coal-fired and nuclear power plants are often
blamed on the proliferation of wind and solar farms (a straight fight
between clean and dirty energy).
In practice,
coal and nuclear power producers are struggling in the face of growing
competition from cheap natural gas as well as renewables.
Since
2010, coal-fired generation capacity has declined by around 54.5
gigawatts (GW), while nuclear capacity has fallen by 1.7 GW, according
to data from the U.S. Energy Information Administration (EIA).
Over
the same period, gas-fired capacity increased by 46.4 GW, wind rose by
44.8 GW and solar was up by 23 GW (“Electric Power Annual”, EIA, 2016).
Coal
and gas-fired power plants produce at full output for more hours per
year than wind and solar farms so it makes more sense to compare actual
generation rather than just capacity.
Coal-fired
generation declined by 607 terawatt-hours (TWh) between 2010 and 2016
while gas climbed by 392 TWh, wind increased by 131 TWh and solar was up
by just 35 TWh.
The biggest challenge to coal
and nuclear has therefore come from gas-fired plants rather than wind
and solar farms, with gas making up almost two-thirds of the lost coal
output (tmsnrt.rs/2ylyRBs).
The
trend is expected to continue, with coal and nuclear accounting for
most of the power stations scheduled for closure over the next three
years, while two-thirds of the new capacity in the pipeline is gas and
most of the rest is wind and solar. POWER POLITICS
The
problems of coal-fired and nuclear power plants are a direct
consequence of the fracking revolution that has transformed the U.S. oil
and gas industry and made gas much more abundant and cheaper.
So
gas-fired power plants as well as the U.S. gas producers would be the
biggest losers from Perry’s grid resiliency rule that seeks to protect
remaining coal capacity by altering the structure of power market
prices.
The threat to the gas industry has
drawn in the influential American Petroleum Institute, which is close to
the Trump administration and congressional Republicans, as well as the
various gas industry associations.
“We support
efforts to ensure reliability,” the API said in response to the
secretary’s announcement (“Take the smart approach for electricity grid
resiliency, consumers and the U.S. economy”, API, Sept. 29).
“However
... we are concerned the agency has mischaracterised the lessons
learned from past weather-related events and appears to suggest that
additional regulation is the answer where markets have already proved
the ability to great benefit consumers.”
“Over
the last decade, competitive forces in natural gas markets have resulted
in the shale gas boom currently providing numerous benefits for the
nation, driving down prices for American consumers and further
increasing the reliability and resiliency of supply.”
“We need to
be careful that government doesn’t put its thumb on the scale. It’s
better to let markets choose,” API warned and called for a “smart
approach” to grid resiliency. INTERFUEL BATTLES
The
grid resiliency rule is simply the latest manifestation of a
long-running battle between the coal industry and its competitors in oil
and gas.
Richard Vietor, a professor at
Harvard Business School, described the fierce inter-fuel competition
between domestic energy producers more than 30 years ago (“Energy Policy
in America since 1945”, Vietor, 1984).
“Interfuel
politics pits industry against industry (for example, coal versus
natural gas), in efforts to use the government to bestow or revoke
competitive advantages on one or the other,” Vietor explained.
In
the 1950s and 1960s, the coal industry lost market share to cheap fuel
oil, and expended enormous effort lobbying the federal government to
protect it from cheap oil imports.
In 1950, the
National Bituminous Coal Advisory Council complained to the Secretary
of Interior about the “dumping” of cheap Venezuelan fuel oil on the U.S.
market.
The council warned that imported fuel
oil was displacing coal as a source of power generation and heating fuel
and warned of the threat to national security if imports were cut off
for any reason.
The oil shocks of 1973/74 and 1979/80 temporarily reprieved the coal industry by making oil and gas much more expensive.
More
recently, the surge in gas prices in 2005/06 and the peak in oil prices
in 2007/08 helped stem coal’s loss of market share.
But the fracking revolution has once again put the squeeze on coal producers and provoked another round of lobbying.
Perry’s
proposed grid resiliency rule has now wandered into this minefield,
almost absentmindedly, with unpredictable consequences.
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