In April 2017, Secretary of Energy Rick Perry asked his staff to examine the evolution of wholesale electricity markets, compensation for resilience in wholesale energy and capacity markets, and premature baseload power plant retirements. The result was the U.S. Department of Energy’s “Staff Report to the Secretary on Electricity Markets and Reliability,” casually referred to as the “grid study.” This report provides a comprehensive overview of today’s electricity markets, the principal causes of coal and nuclear retirements, and the issues surrounding electric grid reliability and resilience.
The grid study identifies low-cost and abundant natural gas, spurred on by fracking and the shale boom, as the main contributor to coal and nuclear plant retirements. It also also notes other factors that include relatively flat electric demand, which has reduced the power plants’ revenue streams; environmental regulations, which have forced dozens of older coal- and oil-fired power plants to retire early; and the growth of intermittent renewable energy that is heavily subsidized by the federal government. According to the report, renewable energy negatively affects the economics of baseload power plants, primarily due to “wholesale market impacts and distortions” from state renewable portfolio standards and federal tax credits for wind and solar.
Significantly, Secretary Perry’s grid study addresses those concerns by recommending that the Federal Energy Regulatory Commission (FERC) look at new grid rules that value nuclear and coal power plants’ attributes, ensuring that they receive a better price for the reliability, resilience, and low-emissions benefits they provide to the grid. It is a process FERC would have to coordinate with the grid operators it oversees.
Specifically, the report’s recommendations include:
- FERC should expedite the study of wholesale market structures.
- FERC should promote research and development for grid resilience, reliability, modernization, and renewables integration technologies.
- FERC should examine infrastructure permitting and regulatory processes.
- FERC should accelerate efforts to improve energy price formation in wholesale power markets and create fuel-neutral markets that adequately compensate resources for essential reliability services to the grid.
- Federal agencies should expedite permitting for hydroelectric, coal and nuclear power plants.
- The Nuclear Regulatory Commission should ensure the safety of existing and new nuclear facilities without unnecessarily adding to the operating costs and economic uncertainty of nuclear energy.
- The Environmental Protection Agency (EPA) should allow coal-fired power plants to improve efficiency and reliability without triggering new regulatory approvals and associated costs.
Since the bulk of the changes recommended in the grid study would have to be made by the Federal Energy Regulatory Commission, which regulates the interstate electricity markets on which the study focuses, Secretary Perry sent a proposal to FERC on September 29. His proposal included recommendations to fix many of the problems affecting coal and nuclear plants, and ensure reliability, resilience, and low-cost electricity for all Americans. FERC then issued a comment period that ended on October 23. The Lignite Energy Council and many of its members submitted comments prior to the deadline.