Electricity is the most effective and convenient way to consume energy. Without it, we’d be living in the Dark Ages—literally. However, we often forget it takes energy to make energy.
In recent years, environmental zealots have called for an overhaul of the U.S. energy grid. In short, they want more green energy sources to replace coal and nuclear power plants. However, this shortsighted plan could very well endanger the future of American energy production. The combination of too few coal and nuclear power plants being built and too many serviceable power plants being shuttered prematurely threatens the viability of America’s power supply.
How well power systems address the problem will be critical to ensuring a reliable, affordable, and secure supply of energy in the years ahead.
Coal, Nuclear Production Decline
A decade ago, about half of the electricity consumed in the United States came from power plants fueled by coal. Today, natural gas is the leader, providing more than 50 percent of our electricity, and coal’s share has dropped to less than 30 percent. In fact, coal capacity in the United States has fallen by more than a third since 2010, and another 25 percent of today’s coal plants are set to close by 2025.
Nuclear plants, which provide about 19 percent of the nation’s electricity, are also going offline. Since 2013, five plants, with a combined capacity of 43 gigawatts, have shut down. Additionally, eight plants, with a combined capacity of 85 gigawatts, are scheduled for retirement over the next six years. That’s almost enough power to serve the entire state of California. The planned closing of the Indian Point Nuclear Power Plant on the Hudson River by itself will remove two gigawatts of power from the grid, equal to nearly 25 percent of New York City’s electricity consumption.
Unlike natural gas, coal and nuclear power are not dependent on just-in-time fuel delivery. Coal plants, in particular, have proven their value in ramping up electricity production in periods of extreme cold when other power sources cannot.
Limits of Renewable Energy
Despite government mandates and massive taxpayer subsidies, wind and solar power account for only about 5 percent of U.S. electricity generation. Calls for even more reliance on renewables and even natural gas pose serious challenges to grid stability and reliability.
Wind and solar will not completely replace conventional power sources anytime soon. They are great when the wind is blowing and the sun is shining, but this is not always the case. Because large-scale battery storage at a reasonable cost is not yet on the horizon, utilities have to invest heavily in backup generation, typically provided by natural gas peaking plants—power plants that are idle most of the time and are only brought online during periods of unusually high electric power demand.
Wind and solar in their current forms cannot make up for the loss of coal- and nuclear-generated power. And if federal and state subsidies to renewables are reduced, the attractiveness of wind and solar investments is likely to diminish substantially.
Right now, domestic gas is cheap and abundant, but that won’t always be the case. A global market for natural gas is emerging, and the United States is becoming a major player. America is projected to become the world’s second-largest exporter of liquefied natural gas within a few years. A decade from now, natural gas prices will be at least 50 percent higher than they are today, making gas-fired power generation a more expensive proposition, according to a recent forecast by the World Bank.
Valuing a Constant Power Supply
Unlike renewables and natural gas peaking units, coal and nuclear plants are “always on,” so the loss of this baseload power is the most serious threat to power grid integrity.
Unfortunately, some system operators are not assigning value to the resiliency attributes of the baseload plants providing power to their grids. Such is the case with PJM, the nation’s largest regional transmission operator, which provides electricity to 65 million people in 13 Eastern and Midwestern states and the District of Columbia.
In an unusual move, senior executives of four utilities that rely on PJM to transmit their power—Public Service Enterprise Group, Exelon Corporation, FirstEnergy Corporation, and Duke Energy—recently sent a letter to the grid operator imploring PJM to adopt market reforms recognizing the importance of their coal and nuclear plants in ensuring grid resiliency and reliability. They argue pricing in the wholesale market, which may be based on the marginal cost of natural gas or the feed-in tariffs of renewables, is not adequately compensating utilities for the reliability of their baseload power plants.
These utilities also want PJM to recognize the importance of fuel diversity for grid reliability and the potential risks to the grid from premature retirements of coal and nuclear power plants.
All power grids, for that matter, must adopt pricing mechanisms sufficient to ensure fuel diversity and an adequate reserve margin. Otherwise, the nation’s system operators will be unprepared for heat waves, polar vortices, spikes in natural gas prices, cyberattacks, and other disruptive events.
Bernard L. Weinstein, Ph.D. ([email protected]) is associate director of the Maguire Energy Institute and an adjunct professor of business economics in the Cox School of Business at Southern Methodist University in Dallas. An earlier version of this article appeared in The Hill. Reprinted with permission.
Bernard L. Weinstein is Associate Director of the Maguire Energy Institute and an Adjunct Professor of Business Economics in the Cox School of Business at Southern Methodist University in Dallas.
