The Department of Energy (DOE) recently released a study assessing grid reliability and evolving electricity markets in the US power sector. This type of review is crucial input for future policy given growing concerns about supply reliability and resilience to extreme weather and other events—and the rapid changes occurring in the industry with regard to generation mix, distributed versus centralized energy sources, load patterns, and so on. DOE produced a reasonable and thorough report that should give readers some comfort in the state of our current electricity infrastructure and in the ability of DOE staff to undertake such an analysis.
At the same time, a few Trump administration concerns were fairly well laid to rest by the report. One is surely that coal generator retirements and reduced coal demand were primarily caused by environmental regulation—this is not the case. The report is clear that low natural gas prices are the primary cause. Indeed, the report makes it clear that fuel diversity (to be understood in this context as the Trump administration’s desire for more coal in the electricity mix) does not equal reliability. Natural gas is better for filling in the supply trough when renewables generation falls off, for instance. In addition, note that most models predict that coal will have a significant role to play in generation into the foreseeable future, irrespective of other changes in demand, supply, and regulation.
The administration also has aired concerns about the planned and actual retirements of 16 nuclear plants. Here again, economic considerations—primarily wholesale electricity prices that are insufficient to cover operating costs—drive retirement decisions in many cases. Those low electricity prices result from low natural gas prices and from the lack of a meaningful price on emissions.
With natural gas as the main fuel powering new dispatchable generators in the United States, the key concept for avoiding a widespread generation outage is not fuel diversity but supply diversity—that is, multiple sources of fuel, even if it is the same type of fuel. For example, assuring that a utility has access to natural gas through several pipelines or sources of stored gas, in case one pipeline route or supply region is impaired.
The report notably lacks discussion of two important issues. It omits consideration of cybersecurity, arguably the newest and least understood threat to resiliency where the US electricity grid is concerned (although DOE notes that a report on this topic is soon to be issued). More important, however, there is virtually no mention of environmental sustainability in the report, and particularly missing from the statement of principles: “the Trump Administration will be guided by principles of reliability, resilience, affordability, and fuel diversity.” Given the magnitude of the environmental impacts of power generation and the strong interactions among environmental protection and the principles discussed in the report, this omission is serious and weakens the report. As noted above, the lack of emissions pricing is one of the two main reasons that the revenues of some nuclear units are insufficient to cover operating costs.
Related to the inadequate discussion of environmental sustainability, the report recommends that the standard New Source Review (NSR) process be suspended for new and modified coal-fueled generators, with no discussion of the human health impacts and other environmental implications. Aside from the unlikelihood that this major pillar of the Clean Air Act will be eliminated by Congress, economists have long argued that NSR is not an optimal policy and should be replaced by an emissions tax or cap-and-trade system. But suspending it for only coal-fueled generators would be to favor them over generators that use other fuels and would likely raise the social costs of coal generation (counting private plus environmental costs).
These omissions notwithstanding, the DOE report is a helpful addition to the debate over how to improve the reliability and resilience of the US power grid as the industry continues to evolve. We await the cybersecurity report and suggestions for how to make the grid reliability report’s recommendations a reality.