Rick Perry’s new coal subsidy could wreck America’s power markets

When old, established industries are threatened by new, better technologies, they often go running to Washington for special protections. It is an old practice, generally taxing the common good for private interests. Unfortunately, the U.S. Department of Energy has set a new record for gall in this practice in a fairly stunning move that would impose a new tax on electricity consumers and roil America’s power markets for years to come. 

Here’s the story: Renewable energy — especially wind and solar — has plummeted in price. Today a new wind farm, for example, is often cheaper than just the operating costs of an old coal power plant. Cheap natural gas creates additional price threats to existing coal or nuclear. And these favorable economics for renewables and gas don’t even count the public benefits they create through clean air, reduced greenhouse gas emissions and avoided fuel price spikes.

{mosads}This transition motivated DOE’s recent study of grid reliability, after coal and nuclear owners warned that closing their plants and adding renewables would cause blackouts. It turns out, though, even DOE’s study found this wasn’t the case, and that clean energy works just fine on our grid.

So, across the country, in power grids where economic dispatch reigns, renewables are booming, and coal plants are shutting down. This is not a “war on coal” nor is this reality susceptible to change through political pro-coal statements. It is free-market economics, plain and simple.

What can the owners of these old power plants do? They posit changing the rules, so instead of simply being paid for electricity, they get paid for “other attributes” as well, including a novel term among utilities, “fuel-secure power plants.” The idea is that having a pile of coal next to your uneconomical power plant should be richly rewarded, bringing your 1970s technology back into the black.

At first blush, this may seem sensible. Surely having a deep inventory of on-site fuel, be it a pile of coal, nuclear fuel or water behind the dam benefits the grid? Well, it turns out that reliable power is better delivered by a diversity of sources, rather than a few huge power plants. It also turns out that wind, for example, is often more reliable than coal. 

During the 2014 polar vortex, wind power and efficiency programs outperformed expectations, while coal piles froze and natural gas suppliers simply ran out. In severe storms, coal fares no better. Hurricane Harvey’s rain forced Texas’ Parish coal plant to shut down and switch to natural gas, as coal piles saturated with water became undeliverable. The same dynamic is playing out in Puerto Rico, where the 98 percent fossil fuel-powered grid could be offline for months. Having fuel on-hand will only help buildings with backup diesel generators, while distributed solar and batteries could have been running again as soon as the clouds cleared. 

But Energy Secretary Rick Perry has ignored this evidence, and proposed a rule to the Federal Energy Regulatory Commission to subsidize the oldest power plants on the grid. His request is anti-innovation, anti-economy, and anti-environment. It is a wholesale repudiation of the free market. And it flatly contradicts Texas’ experience.

In Texas, electricity market competition created a wind and solar boom at the expense of old, expensive coal power plants. Since 2008, wind power grew from 5 percent to 13 percent of the electricity mix, while consumer rates fell 25 percent and coal generation fell 24 percent. Texas now leads America in wind power with triple the capacity of the next closest state, generating $38 billion in investment, and 22,000 jobs. 

How are Texas’ grid operators responding to Perry’s reliability “crisis?” By adding 25 percent more wind generation and 400 percent more solar generation within five years, potentially becoming America’s biggest solar market. And throughout, Texas’ power system is becoming more reliable. 

Perry’s own DOE study, commissioned in April, also contradicts the FERC filing. The report embraces analyses from U.S. national labs and independent experts, supporting the consensus view that America’s changing power mix, particularly the shift to variable renewables, does not threaten reliability. Germany and Denmark, along with California, Iowa, and Texas already show how large amounts of renewables reliably replaced coal.

It’s not surprising that increasingly obsolete industries go to Washington for protection. This is an unseemly, though regular, tradition. It is outrageous, though, when the government agency charged with delivering reliable, affordable and clean electricity dispenses all these values to invent new rationales, wholly at odds with real-world experience, market forces and their own study, to protect the worst operators on the system. This is a shame at every level.

Hal Harvey is CEO of Energy Innovation, a California-based think tank focused on delivering high-quality research and original analysis to policymakers to help them make informed choices on clean energy and climate policy. He was previously founder and CEO of ClimateWorks Foundation, founder and president of the Energy Foundation, and has served on energy panels appointed by Presidents Bush (41) and Clinton. Hal has been published in multiple outlets including Forbes, the Los Angeles Times and The Hill.