A new independent assessment by The Brattle Group of US President Donald Trump’s plan to bail out the country’s coal and nuclear plants has concluded that the cost of such a bailout could balloon to $70 billion over two years.
It has been a rough year for the United States’ fossil fuel and nuclear industries, with coal and nuclear specifically feeling the pinch of increased reliance on gas and renewable energy. This year alone it was reported that electricity generation from fossil fuels declined in 2017 at the same time that generation from renewables increased — specifically, natural gas generation fell by 7.7% and coal generation fell by 2.5%, while generation from hydro, wind, and solar all saw increases. Further, just last month, the US Energy Information Administration confirmed that coal dropped to 27% of total electricity generation over the first third of the year, while renewable energy and nuclear tied at 20%.
To make matters worse, the declining use of coal in the overall US energy mix is being blamed not on renewable energy and distributed energy sources — as many would prefer — but on falling natural gas prices.
On top of it all, the year started out with the Federal Energy Regulatory Commission (FERC) unanimously rejecting a proposal by the country’s own Energy Secretary, Rick Perry, to subsidize the US coal and nuclear industries for their mythical supply of baseload power.
Unfortunately, the move to subsidize fossil fuel in the US didn’t stop there, and at the beginning of June a draft plan was leaked that set-out plans by the Trump Administration to do just that, despite the evidence and expert opinion of nearly the entire US energy sector.
A broad coalition of US energy industry associations — bringing together the petroleum, natural gas, renewable energy industries — roundly condemned the move as “unprecedented and misguided” and “an exercise in crony capitalism taken solely for the benefit of a bankrupt power plant owner and its coal supplier.”
The coalition of energy industry associations promptly commissioned leading utility operations and energy markets consultant The Brattle Group to analyze the draft proposal, the results of which were published this week — and the news is not good, as the Brattle Group report concludes (PDF) that such a bailout could cost American taxpayers anywhere from $34 billion to $70 billion over the next two years. Specifically, the Brattle Group provided the following estimates of the direct costs of such a bailout:
- $16.7 billion per year, or roughly $34 billion for two years as proposed, if every coal and nuclear plant in the country were given a uniform ($ per unit of capacity) support at the level of the average financial shortfall experienced by such plants;
- $9.7 billion to $17.2 billion annually, or roughly $20 billion to $34 billion over two years, if only those plants now facing shortfalls were given payments sufficient to cover their operating losses; or
- $20 billion to $35 billion annually, or $40 billion to $70 billion total, if power plant owners were also granted a return on their invested capital in addition to payments for operating shortfalls.
“The magnitude and range of these estimates indicate the significant impact of yet-to-be determined policy design parameters and the uncertainty of the scope and impact of those choices on cost,” the report notes before concluding: “Arresting the retirement of uneconomic generating assets in the current market environment will likely prove quite costly.”
Unsurprisingly, and with good reason, the energy sector associations have further condemned the proposed bailout. The group of associations includes Advanced Energy Economy (AEE), American Petroleum Institute (API), American Wind Energy Association AWEA), Electricity Consumers Resource Council (ELCON), Electric Power Supply Association (EPSA), and Natural Gas Supply Association (NGSA).
“This report sheds light on how costly the Administration’s coal and nuclear bailout could be,” said Amy Farrell, AWEA Senior Vice President for Government and Public Affairs.
“The $10 to $35 billion this policy would take from American taxpayers to keep failing businesses open each year for the next two years is just the down payment – this misguided bailout would also completely upend the competitive electricity markets that are delivering billions in consumer savings. That’s a steep price to pay in an era of US energy abundance, when independent regulators and grid operators agree that orderly power plant retirements do not constitute an emergency.”
“Giving aging power plants that are not needed to keep the lights on $34 billion just to exist – that’s money for nothing,” added Malcolm Woolf, AEE Senior Vice President of Policy.
“It’s too high a price to pay when advanced energy resources and competitive markets can provide the necessary services to keep our grid affordable, reliable, and secure. Independent assessments confirm that these power plants – most of which are decades old – are not needed to ensure reliability or security. We urge the Trump Administration to abandon, and Congress to resist, this exercise in crony capitalism, which comes at the expense of American businesses, families, and economy.”
According to The Brattle Group, “The study does not assess the extent of likely negative impacts on competitive markets, nor does it address the magnitude of potential benefits, such as the claimed reliability and resilience effects or the environmental benefits associated with retaining nuclear units.” However, as the Federal Energy Regulatory Commission explained in January when responding to Secretary Perry’s original bailout, the supposed “benefits” of subsidizing coal and nuclear power plants are slim to none. “The Proposed Rule had little, if anything, to do with resilience, and was instead aimed at subsidizing certain uncompetitive electric generation technologies,” Commissioner Richard Glick explained at the time. Commissioner Cheryl A. LaFleur added, “I do not think the record demonstrates the need for the Proposed Rule to support resilience. Further, even had a resilience issue been demonstrated, I have serious concerns about the nature of the proposed remedy, which would address the issue not through market rules but through out-of-market payments to certain designated resources.”
I reached out to Secretary Perry and the Department of Energy, but as of publishing they have declined to respond. I will update as appropriate.