The Hunger Games of America’s electricity
A series of policy actions in Washington and nationwide market trends are scrambling alliances across different energy sources all fighting for a piece of America’s stagnant electricity market.
Why it matters: The bottom lines of companies across the energy industry depend upon growing their share of the power mix, yet they often also align with each other in different policy and market fights. Your electricity bill and the nation’s carbon emissions are also at stake. Let’s take a look at the forces at play and the unlikely alliances forming in what can best be described as the Hunger Games of America’s electricity.
Market moves
The Energy Department took the unusual step late last month of asking the Federal Energy Regulatory Commission to issue a rule that would favor nuclear and coal plants, with the stated aim of ensuring the electric grid is resilient.
FERC, an independent government agency that regulates the electricity markets and other energy infrastructure, makes the final decision about whether to issue DOE’s proposed rule.
Coal and nuclear have been on the losing end of market and policy moves over the last several years. This is President Trump’s attempt to reverse those trends even though costs keep dropping for natural gas, solar and wind.
“Almost everybody has been winning at coal’s expense over the last five or six years,” said Ethan Zindler, U.S. director of Bloomberg New Energy Finance. “U.S. demand for electricity hasn’t been growing, so the pie isn’t getting bigger. If you want more of the pie, you have to take it from someone else.”
Coal was the dominant player in the electricity space for decades up until several years ago. Hit with the one-two punch of cheap, cleaner burning natural gas and Obama-era environmental regulations, coal’s share of the market is shrinking, from nearly 50% in 2008 to 30% in 2016.
The nuclear power sector is struggling to grow its share of the market. It’s hovered just below 20% for the last decade or more. Cheap natural gas is also hurting nuclear power, along with other obstacles like high upfront costs and environmental opposition. Its carbon-free profile is less of an asset under the Trump administration, which is rolling back federal climate policies.
The Energy Department’s proposed rule would allow coal and nuclear plants operating in competitive markets, which make up more than half of the United States, to recover costs if they have 90 days worth of fuel on site. That’s an advantage coal and nuclear have. But gas and renewables are more flexible, making them a natural pairing on the electricity grid.
“Gas can compensate very quickly to the oscillating sources of wind and solar, which is the exact direction our systems in the world are evolving,” said Paolo Frankl, who leads the International Energy Agency’s renewable division. “Both coal and nuclear are more rigid technologies, so they will have more difficulty adapting in a new system.”
The Energy Department’s move prompted an unusually broad coalition of trade associations representing wind, solar, natural gas and more to sign onto a filing urging FERC to take more time reviewing the proposed rule. Right now, the Energy Department is only allowing 60 days.
Much has been made of that broad and diverse coalition, but it’s important to note that their only common goal in that filing was asking for more time.
Renewables and the oil and gas industry are not natural allies in Washington, but they are in this one case because of their shared interest in not letting coal and nuclear grab their market share.
