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This Coal Power Subsidy Is Nuts

Energy Secretary Rick Perry has hit upon a strategy to prevent blackouts and, coincidentally, subsidize struggling nuclear and coal-fired power plants. It’s the squirrel strategy.

Perry sent a letter last week to the Federal Energy Regulatory Commission, directing it to come up with a rule that would change how electricity gets priced in America’s unregulated wholesale power markets. Specifically, the Department of Energy wants plants that can store 90 days’ worth of fuel onsite to be offered extra market compensation — an effective subsidy.

Ostensibly, this is to reward those plants for their resiliency. Like giant squirrels, their stockpiles would help them power through disruptions to fuel supply (the letter cites the Polar Vortex of early 2014 as an example of this in action).

It just so happens that the only plants doing this to any degree are those using uranium or coal. Natural gas-fired plants rely on pipelines, and renewable sources rely mostly on the weather or the flow of water.

For coal miners, this rule would encourage their biggest customers to simply buy the stuff in order to have it just lying around. As it stands, coal-fired plants in most areas of the U.S. had enough fuel on hand to cover about 75 days of usage at the end of July:

The Hoard

Rick Perry’s proposed subsidy for coal-fired power plants would encourage them to stockpile more of the fuel against potential shortages; a bit like giant squirrels

The DoE’s proposal sounds an awful lot like at least partial re-regulation of power markets. Coal and nuclear plants have suffered from a combination of flat demand for electricity and competition from cheaper natural gas-fired plants and renewable power.

An August blog post by the DoE itself shows that, in one crucial respect, competitive electricity markets have worked as intended. Between 2006 and 2015, 43.1 gigawatts of coal-fired capacity was retired, versus 19.5 gigawatts of new capacity that was switched on.

Crucially, the heat-rate of the new plants — the amount of fuel required to produce electricity — was about 7 percent lower on average than for the old ones. In other words, less-efficient plants were priced out. One reason this hasn’t saved the coal-fired sector: The corresponding drop in average heat rates for new gas-fired plants versus old ones was 37 percent. And as more coal plants have installed equipment to control emissions, their overall heat rate has actually risen:

Read full article at Bloomberg