Coal Groups Dig In To Save Power Plants

 

 

By John Siciliano

July 11, 2018 - The coal industry is ramping up a campaign this summer to erase the “bailout” label that has become synonymous with the Trump administration’s push to save economically ailing coal power plants, while reinforcing the case for keeping coal in the nation's energy mix.

“We are just trying to correct the record,” said Michelle Bloodworth, the newly appointed president and CEO of the pro-coal industry group American Coalition for Clean Coal Electricity.

Bloodworth’s group is upping its efforts this summer to reverse the characterizations that accounting for the value of the coal fleet would constitute a subsidy or government-backed bailout for the coal industry.

A coalition of trade organizations representing every sector from oil and natural gas to solar panel manufacturers has opposed the idea of using either market-based incentives or rarely invoked emergency powers to keep coal plants from closing over the next three years.

“We just don’t see there is any reason to have any sort of federal intervention in the market to bail out coal and nuclear,” said Dena Wiggins, president of the Natural Gas Supply Association, representing major integrated and independent natural gas producers, and a member of the broad coalition opposing coal. She added, "we just don’t believe there is an emergency or there is a national security problem that requires federal intervention."

A group of free-market and conservative groups recently called on the president to abandon the “bailout” scheme, and let the market dictate the energy resource mix.

“We are trying to say, we don’t think it is” a bailout, said Bloodworth. “We think it’s more about ‘valuing,’ and that can be done in a market approach” that rewards “attributes” of coal plants that help the grid and consumers.

The electricity markets currently favor natural gas power plants over coal and nuclear because of its low cost due to the shale energy boom. It is one of the reasons coal and nuclear plants are being forced to retire or close prematurely over the next three to five years.

Opponents of the Trump coal plan will be releasing a separate study on the costs of a coal and nuclear bailout on consumers, say sources close to the study.

“Retail customers will likely pay more for electricity to cover the costs of the subsidy,” said credit ratings giant Moody’s in an analysis issued last month. It would also force more efficient natural gas power plants to be used less often by the grid operators, the analysis read.

But the coal group says natural gas plants are not able to withstand a major outage like the coal fleet without tens of billions of dollars in investments, arguing that there is a cost from having more natural gas on the grid without coal.

The group argues that either coal plants are allowed to stay in the mix, or ratepayers will be forced to pay more to make the investments necessary to make natural gas power plants more secure if the grid is significantly strained by weather or even cyber attack.

One of the principal attributes of coal is what Bloodworth’s group and grid regulators call “fuel security,” which both coal and the nuclear fleet provide to the U.S. grid.

Fuel security refers to the ability of a power plant to continue to produce electricity when disruptions occur. Energy Secretary Rick Perry defined this length of time as 90 days in his first proposal last year to provide market-based incentives for coal and nuclear power plants.

To retrofit the natural gas fleet to have a back-up fuel supply to provide fuel security would cost between $50 billion and $80 billion in the PJM market, the largest 13-state electricity market in the United States overseen by the federal government.

“A significant amount of infrastructure is needed to make gas more resilient,” Bloodworth noted in an email. “On the other hand, the transportation infrastructure for the coal fleet is already in place and has considerable redundancy.”

She cited an ICF report commissioned by the Interstate Natural Gas Association of America, representing natural gas pipeline companies, to help make her point. The report showed there will be close to $400 billion of natural gas midstream infrastructure investment needed between 2018 and 2035.

Her group is planning on issuing briefs over the next several weeks to make these points in support of keeping coal in the energy mix, while meeting with grid operators.

The National Mining Association is also looking to draw support for keeping the nation’s coal fleet operational, blaming the markets for favoring one form of energy over another.

“We are heading towards a reliability and resiliency crisis point of no return,” said an official with the mining trade group speaking on background.

An additional 12,000 megawatts of coal-fired electricity is expected to close by the end of this year. “That’s enough capacity to power 8 million homes,” the official said.

“We need decisive action to preserve the reliable, affordable energy that continues to slip away each day.”

The mining group is “working to raise awareness that stronger action is required to address” issues in the energy markets that are pushing power plants that provide 24-hour, seven-day-a-week electricity “in favor of less reliable alternatives,” the official said.

Perry had originally wanted the Federal Energy Regulatory Commission to reward coal and nuclear plants for the “resiliency” they provide to the grid from their 90-day supply of fuel. But FERC unanimously rejected the proposal, citing a lack of data to support the need for providing market-based incentives to the plants.

Instead, FERC opened its own process to get all segments of the industry on the same page in defining what resiliency is, and then make a determination on what, if anything, they should do to address it in the large energy markets they oversee. This could take years to resolve, say industry sources.

But Trump wants something to happen sooner based on the national security implications of not having enough coal plants to provide electricity.

During a speech in West Virginia last week, Trump explained to supporters why he favored coal over natural gas.

"You know, you bomb a pipeline, that's the end of the pipeline," Trump said. "With coal, that stuff is indestructible."

Trump ordered Perry last month to pull together a plan to save the ailing power plants that are being forced to close prematurely because of low natural gas prices and other market-based issues.

Perry has struggled for months to find a way to address the premature closures of both coal and nuclear power plants, which has proven tricky from both a legal and regulatory basis.

Paul Bailey, the former CEO of American Coalition for Clean Coal Electricity, describes two processes occurring simultaneously in government to address the power plant issues.

First, the president and Perry are attempting to address the issue, but the process is not clear, yet.

The other process is much more deliberate and being led by FERC.

Bailey, who is now leading the coal group’s policy shop, says his group favors the FERC process, and sees a path toward keeping coal in the mix with a variety of short-term actions. There are strong opponents to helping coal plants at both levels, which is why Bailey says stronger analysis is needed to make their case.

A recent report done for the coal group found that “there will be reliability problems” if coal plants begin to close, especially in the FERC-overseen region controlled by grid operator PJM. Natural gas is producing much of the electricity in PJM, and Bailey argues that natural gas won’t be enough if there is a disruption.

“If there are gas outages then the PJM grid becomes less resilient,” Bailey explained. “So, we keep on saying, ‘why don’t other people do this?’” Bailey presented the report’s findings to PJM earlier this month.

He is also working on what he hopes “will be a simple explanation of what the kinds of analysis we would like to see all the grid operators do” when it comes to evaluating the effects of coal plant closures.

“We just haven’t found the time to finish that, yet,” Bailey said. But once the new analysis is complete his group is going to take it to North American Electric Reliability Corporation, the nation’s reliability watchdog, and to FERC.

The second part of their push has to do with Congress passing short-term tax incentives that would cover some of the operating cost for the power plants, while FERC completes its more involved work on resilience.

Legislation has been introduced in both the Senate and House to provide temporary incentives to coal plants.

 

It would be a “temporary tax credit” lasting five years, which “lines up with the 3 to 5 years we think it will take FERC to finish up,” Bailey said. 

 

 

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