Rick Perry Wants to Subsidize Coal and Nuclear

Rick Perry wants the federal government to help prop up nuclear power and coal. Late last week the energy secretary asked the Federal Energy Regulatory Commission (FERC) to consider paying “resilient” power producers more for the electricity they supply to the grid. In a letter written to FERC, Secretary Perry highlighted the “undervaluation of grid reliability and resiliency benefits provided by traditional baseload resources, such as coal and nuclear,” a problem he would see fixed by a potential market intervention by FERC.

This policy recommendation is the result of a study Secretary Perry ordered earlier this year, which aimed to take account of what the recent rise in intermittent renewable power suppliers had done—and what it was going to do—to America’s overall grid stability. That intermittency is a real issue: renewables like solar and wind can only provide power when the sun is shining and the wind is blowing, and that up-and-down supply makes it difficult to match supply with demand. Perry’s request of FERC could, in that context, be read as an attempt to shore up U.S. energy security by making sure baseload power providers are compensated for the stable electricity they contribute.

It’s true, too, that even as renewables are seeing growth, some of those reliable baseload power providers are struggling. We’re not building any new nuclear power plants because the business case for doing so simply isn’t there, and dozens of old plants face decommissioning in the coming decades. There’s no doubt that the nuclear industry would jump at the opportunity to secure higher rates for the stable power it supplies.

Natural gas has hurt coal, another baseload source, even harder. Unlike nuclear power, coal is an extraordinarily dirty energy source. Coal pollutes locally by making air toxic to breathe (look to the smoggy skies of Beijing or New Delhi for proof), and it’s a global menace for the high amount of greenhouse gasses it emits. Like nuclear, though, coal supplies are being displaced by cheap natural gas, itself a product of the recent shale boom. Higher rates would be the lifeline to coal Trump promised to deliver in his campaign.

There’s certainly a case to be made that our energy markets, or more specifically power prices, don’t properly account for stability of supply. Above all, electricity needs to be dependable, and in that sense you could make the case for compensating power plants for their reliability.

But if that’s the goal here, why focus on nuclear and coal, and not on natural gas as well? In the Department of Energy’s recent grid stability study, questions were raised about natural gas’s ability to keep the lights on during extreme weather events, but fringe cases notwithstanding shale gas is undeniably reliable. Even better, it’s abundant and cheap. Natural gas-fired power plants have lower capital costs than coal or nuclear competitors, so they’re able to more easily ramp supply up or ease it down to match demand, as there is less of an imperative to stay operational to recoup those up-front costs. That doesn’t make natural gas an intermittent source by nature, it makes it a flexible one by design—that’s a feature, not a bug. The decision to exclude natural gas makes Secretary Perry’s proposal appear to be more about propping up two struggling energy sources and less about reliability of supply. Looked at another way, it’s the government picking winners and losers.

Beyond the particulars of the proposal, this looks to be a momentous decision on the part of Secretary Perry. The last time the Energy Department nudged FERC to intervene in our power market was in the 1970s, when the Arab oil embargo had the U.S. spooked about reliance on foreign energy sources. The Trump Administration appears to want to intervene during a time of widespread energy abundance—or even energy “dominance,” in White House’s own words. Already, Big Oil and Big Green have come together to advocate against the proposal, and if that doesn’t tell you that something strange is afoot, nothing will.

There will be plenty more of this story to come, and it is by no means clear how things will settle out. Stability of supply is undoubtedly valuable, but assigning that value is going to be a fraught task, to say the least.

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