Some existing U.S. coal and nuclear plants have failed in competitive wholesale markets for several years, mostly for sound commercial reasons. The driving factor has been the astonishing rise of low-cost natural gas, thanks to new technologies. Horizontal drilling and hydraulic fracturing have turned the tables on electric generation.
State and federal subsidies for wind and solar have played a malign market role, particularly harming nuclear. A key nuclear characteristic in the U.S. is its inability to ramp generation up or down. U.S. nuclear runs 24/7 and costs are incurred 24/7. But it doesn’t generate revenue in energy markets 24/7. Renewable subsidies mean many nukes can’t compete in capacity markets.
For coal, it’s a straight-up market issue. Many coal plants can’t compete in energy markets because of the low cost, and low capital costs, of natural gas.
All this suggests to me that proper public policy is to let markets work, outside of the states where legacy monopoly regulation keeps technologies in the generating mix, largely ignoring economics. If this sounds historically Republican, it’s not today’s Republicanism.
Donald Trump campaigned in 2016 on a platform of saving coal-fired electric generating plants. That won him major victories in places such as West Virginia and Pennsylvania. But Trump’s campaign promises for coal are entirely fantasy. The U.S. steam coal business is in long-term, market-driven decline (while met coal for making steel has a different and more positive business profile).
As the Trump administration came to power in 2017, the nuclear industry, with deep ties to conventional Republican interests, piggybacked onto Trump’s rescue coal agenda. The administration hatched a harebrained scheme for the Department of Energy to petition the Federal Energy Regulatory Commission to overturn the competitive markets and reward coal and nuclear power for their unrecognized “resilience” characteristics. The argument was that coal and nukes have a long-term on-site fuel supply that renders them exempt from conventional market forces.
That made no sense. U.S. grid failures have never been a function of fuel supply at generating stations. They have been driven by transmission and distribution disruptions. FERC, with a Trump-appointed majority, resoundingly rejected the administration ploy to rescue coal and nukes.
The latest Trump administration attempt to circumvent the wisdom of markets comes in reports they may try to invoke section 202 (c) of the Federal Power Act, a provision for energy emergencies, to push coal and nuclear plants into the competitive markets. That push comes from Ohio-based FirstEnergy, which has both coal and nuclear plants unable to compete in the PJM Interconnection. It’s not going to happen. There is no “emergency” to which the order might apply.
Attempts from the Trump administration to bail out uncompetitive coal plants simply fail the economic laugh test. Trump’s assertion that coal’s collapse was a result of federal regulation is, from the get-go, bogus.
The case for the out-of-market nukes is more sophisticated and persuasive, but nonetheless not valid. The nuclear industry argues that nuclear power plants have an unvalued attribute in the market: They don’t produce the greenhouse gas carbon dioxide. (Back in the 1980s the nukes pressed the notion of their superiority as generating technology because they didn’t produce SO2 and oxides of nitrogen, and that didn’t work.)
The nuclear industry argument is sophistry. There is no definitive calculation of the value of CO2 emission, aka the “social cost of carbon,” nor does one appear available anywhere in the world. What limited market signals we have about the value of carbon dioxide emissions, from the U.S. Regional Greenhouse Gas Initiative (RGGI) in the northeast, or European carbon trading markets, is that the value today is too low to justify rewarding uncompetitive nuclear plants.
The argument the nuclear industry really advances in state after state — New York, Illinois, New Jersey, and Pennsylvania to date – is pork barrel. The plants are big local employers, they generate substantial local property taxes, and they are locally politically popular. The best example of this is New York, where Democratic Governor Andrew Cuomo supported bailing out upstate nuclear units, while continuing to support closing the Indian Point plant nearer New York City, for entirely political reasons.
Ultimately, the best course of action is to let the plants that can’t compete in competitive wholesale markets close. That’s how markets are supposed to work (are you paying attention, Republicans?). No-fault capitalism is no way to go.
— Kennedy Maize