Hurricane winds and raging wildfires knocked out power to millions of people from Florida to California this year, underscoring the need to protect America’s electric grid from disaster.
President Donald Trump’s administration has a plan to achieve what it calls “resiliency”: Keep money-losing coal and nuclear plants running. The only problem is that almost every other corner of the energy industry — including the $700 billion utility sector — is heading in another direction.
Even as the White House pushes a proposal to prop up coal and nuclear, the nation’s utilities are devoting almost half of their record $123 billion in spending this year to power lines and poles. Government data shows the lights go out because of grid disruptions, not a lack of generation. Puerto Rico, where power was completely wiped out for days after Hurricane Maria slammed ashore in September, is looking to rooftop solar and batteries. Even the U.S. military is turning to on-site renewables.
The country’s largest power market, stretching across much of the eastern half of the U.S., has a glut of power supplies so large that Moody’s Investors Service has warned that generators will have to shut. Spending utility customers’ money — as much as $11.2 billion, according to The Brattle Group — to keep more coal and nuclear online could exacerbate that overbuild, extending what’s already been a three-year slump in electricity prices.
“If you end up ‘fixing the market’ in a not market-friendly way, you might just end up making it dysfunctional and you end up reducing investor confidence,” said Toby Shea, a New-York based credit analyst at Moody’s. “There’s no right or wrong, but it’s obvious it’s going to make the downturn worse. That’s not debatable.”
In September, Energy Secretary Rick Perry directed the Federal Energy Regulatory Commission, which oversees the nation’s grid, to come up with a rule that would allow generators with 90 days of fuel supply on site to recover costs plus earn “a fair rate of return.” Such plants are facing premature shutdowns and are indispensable to economic and national security, Perry said in a letter to the agency. FERC will decide on the proposal Dec. 11.
Part of a series on Trump’s plan to rescue coal. Read the latest here.
“America’s greatness depends on a reliable, resilient electric grid powered by an ‘all of the above’ mix of generation resources,” he said. The Energy Department didn’t respond to requests for comment by email and phone, and a Defense Department spokesman didn’t immediately respond to an emailed request.
The first challenge: define resiliency. There are hundreds of rules pertaining to reliability, which ultimately is the ability to keep electricity flowing to consumers all the time.
“We still haven’t fundamentally fleshed out what the concept of resilience means and I think that is part of our process,” FERC Chairman Neil Chatterjee said in an Oct. 27 interview. To Chatterjee, it’s “the ability to ensure not only that the lights stay on but that in the event of a natural or manmade disaster, we are quickly able to restore power.”
The Energy Department’s plan to aid coal and nuclear won’t come cheap. Independent estimates for the cost of the energy department’s proposed policy range into the billions of dollars a year. An October study by Energy Innovation: Policy and Technology LLC forecast $311 million to $10.6 billion, depending on detail of how the policy is adopted. The Brattle Group predicted $3.7 billion to $11.2 billion a year.
Utilities including American Electric Power Co. and Duke Energy Corp. are focused on power lines, rather than fuel supply. One major lesson from recent disasters, including Superstorm Sandy in 2012 and the extreme eastern U.S. cold in 2014: damage to lines and related infrastructure, not plants, is the primary cause of outages. From January 2016 through September of this year, none of the major electricity disruptions affecting 22 million customers were caused by fuel issues, government data show.
American Electric Power and Duke said they didn’t support the Energy Department’s proposal as written, according to comments filed with FERC.
“Major blackouts nearly all start in the long, vulnerable transmission lines that coal and nuclear plants require,” said Amory Lovins, co-founder and chief scientist of the Rocky Mountain Institute, a non-profit focused on sustainability.
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Less than one-thousandth of 1 percent of utility customer hours lost to outages between 2012 and 2016 were caused by fuel supply emergencies, according to consultant Rhodium Group. After the “polar vortex” that brought frigid weather to the U.S. East in 2014, power generators added dual fuel capabilities so they could switch to burning fuel oil when gas supplies were low or prices too high. New England’s liquefied natural gas import terminal has also seen a revival since the polar vortex, bringing shipments from Trinidad.
Duke, one of the largest U.S. utilities, will spend the bulk of its planned $25 billion grid investments over the next decade on hardening its systems against damages, said Lee T. Mazzocchi, senior vice president of grid solutions at the company in Charlotte, North Carolina. It’s “extremely rare” for the utility’s generation to fall short of customer needs, he said.
Utilities are spending money on concrete poles, equipment sensors and other technologies to track outages, said Rob Manning, vice president of transmission and distribution at the Electric Power Research Institute. Solar, wind and other so-called distributed generation systems are allowing customers to supply power to the grid, too. Utilities have increasingly directed spending to these areas over the last decade, he said.
A testament to that shift: American Electric Power said it will spend $4.5 billion to buy the country’s largest wind farm, which is under construction, and build a 350-mile transmission line to serve customers in Arkansas, Louisiana, Oklahoma and Texas. Those customers will see their utility rates go down when that power starts flowing, said Lisa Barton, president and chief operating officer of the company’s transmission operations.
But Trump’s proposal does have at least one group of vocal supporters in the energy industry: Coal miners. Murray Energy Corp., the largest closely held U.S. coal producer, “strongly and enthusiastically” supports the Energy Department’s plan, Robert Murray, the company’s founder and chief executive officer, said in a filing.
Failure to act “will create significant risk for consumers of electricity throughout the United States and will threaten the livelihoods of hundreds of thousands of people” in the nuclear and coal industries, the company said.
The nation’s military is also moving toward clean energy. The Defense Department — one of the world’s largest energy consumers — had about 1,631 renewable energy projects operating in 2016, an increase of 17 percent over the previous year, according to a report. Generating more power on site will help insulate military installations from grid-wide blackouts, Rocky Mountain Institute’s Lovins said.
“The Pentagon is switching from insecure grid-delivered power to distributed, granular, renewable generators,” he said.
The rule may have the biggest impact on the PJM Interconnection LLC grid, the nation’s largest, which serves almost a fifth of the U.S. population from Washington to Chicago. The region is the epicenter of the boom in natural gas from shale, which has flooded the market with cheap supply and forced coal plants and nuclear reactors to shut. And PJM doesn’t need coal and nuclear to avoid disruptions: Though the grid is required to have a reserve margin, or capacity above what’s needed to meet normal peak demand of 17 percent, it actually has 29 percent on hand, PJM spokesman Ray Dotter said.
While the grid stretching from the Midwest to Louisiana relies on coal for about half of its electricity, the system has a diverse mix of supplies and doesn’t expect any disruptions caused by older plants potentially shutting, said Jeff Bladen, executive director of market services for grid operator The Midcontinent Independent System Operator Inc. Meeting reliability needs has changed over the past decade or two because people are using electricity far differently, requiring distribution and generation that can react to swings in supply and demand, he said.
“Ultimately customers have a choice and if the cost of the grid becomes so high, customers will choose alternatives,” Bladen said. “The economy is built on low-cost energy that is reliable.”
Perry’s push won’t affect his home state of Texas, where power generation owner Vistra Energy Corp. recently announced the retirement of three coal-fired plants because of poor economics. The state has intentionally limited interstate connections to stay free of FERC’s jurisdiction.
California, meanwhile, is becoming a test case for what the grid would look like without coal or nuclear reactors. The state has weaned itself off of coal-fired electricity and plans to shut its remaining nuclear power plant by 2025. Its utilities expect to get 50 percent of their power from renewable sources by the end of this decade, far ahead of a target set for 2030.
Costs are falling so dramatically that in some areas it’s cheaper to build new gas plants and wind and solar farms than to keep operating nuclear and coal generation, said Jonathan Mir, head of North American power and utilities at Lazard Ltd.
“It is unfortunate if false hope is being given around the prospects of plants operating in places where there are permanent technology changes that rendered them obsolete,” Mir said. In those areas, “you need to start focusing on other ways to help people.”