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IEEFA op-ed: A U.S. coal bailout wouldn’t stop electric sector transition

IEEFA op-ed: A U.S. coal bailout wouldn’t stop electric sector transition

A blatant misuse of the law and a phony national-defense argument

It seems a waste of time and resources to call on a nearly 70-year-old defense law to rescue certain failing and outdated sectors of the energy industry. Yet that is precisely what has been proposed.

The Trump administration is floating a plan to use the Defense Production Act of 1950, enacted as a drastic national-security measure to be deployed in time of war, to prop up failing coal and nuclear power plants. Invoking this act would be a blatant misuse of the law, which came into effect at the outset of the Korean War and with the intent of ensuring rapid mobilization of U.S. industries within the larger context of the Cold War.

And it would be costly for anyone who pays an electric bill.

The proposal to employ the act amounts to an intervention in energy markets and a bailout for unprofitable power plants that can no longer compete against natural gas and renewables. The argument is that these plants are necessary to prevent blackouts on the grid — a claim nearly all experts say is untrue.

Two companies in particular have championed a bailout: FirstEnergy and Murray Energy, which are both struggling with outdated business models that wrongly assume American demand for coal will never end. A fast-moving transition away from coal is enveloping the American electricity industry, however, and utility executives themselves have acknowledged and embraced this reality. The CEO of Xcel, one of the nation’s largest utilities, told an industry convention earlier this year that it was “just a matter of when” the U.S. would retire its coal fleet.

That said, it’s unclear how many plants would be propped up by invoking the Defense Production Act, but it would certainly come at a price. Credit ratings agency Moody’s said recently that while the proposed bailout would be good for coal and nuclear plant owners, it would be costly for residential and manufacturing ratepayers. At a recent Senate hearing, one member of the Federal Energy Regulatory Commission said the bailout could cost up to $65 billion, or about $500 more per year for the average person who pays an electric bill. A study by the Brattle Group puts the price at $34 billion annually.

‘Significant rate increases without any corresponding reliability, resilience or cybersecurity benefits.’

All five members FERC, including those appointed by President Trump, indicated in recent open testimony to Congress that the retirement of coal and nuclear power presents no threat to the grid and that markets are working quite well.

Robert Powelson, one of the three Republicans on the commission, said the plan could very well collapse competitive markets and “result in significant rate increases without any corresponding reliability, resilience or cybersecurity benefits.”

And this doesn’t even get into the health consequences of burning coal, which is linked to tens of thousands of deaths each year.

THE PROPOSAL IS SO NONSENSICAL THAT IT IS UNITING BROAD SWATHS OF THE ENERGY INDUSTRY in opposition. The American Petroleum Institute joined a larger group of industry associations that represent energy-efficiency and storage businesses, natural gas, solar and wind generators to condemn the effort.

The supposed alarm over grid security comes as power prices from sustainable solar and wind keep dropping. In Nevada, a power provider just signed a long-term power purchase agreement that will provide electricity from solar resources for a record low $23 per megawatt hour. That’s far less than the cost of producing electricity at the coal-fired Navajo Generation Station in neighboring Arizona, which, like many such plants across the country, is scheduled for closure because it can’t compete. It’s not just out West that this transition is happening. Driven by record low prices, solar and wind-powered generators are replacing coal-fired generation across large parts of the nation.

Not a lot is clear about the technical reasoning or practical execution behind the administration’s proposal. What is clear is that these lower-cost renewables — solar and wind — and gas-fired generators would be bumped off the grid in favor of more expensive coal plants. All in the name of a national security “emergency” that does not exist.

The use of emergency war-time powers to save coal-fired and nuclear power plants is ultimately a futile attempt to thwart long-term, fundamental change in U.S. energy markets that will proceed nonetheless, and to the benefit of customers everywhere.

David Schlissel is IEEFA’s director of resource planning analysis. A version of this column appeared this morning in USA Today.


IEEFA update: Unmistakable trends in American wind and solar

IEEFA report: Fund trustees face growing fiduciary pressure to divest from fossil fuels

IEEFA update: The U.S. coal industry’s war with itself

Source: IEEFA

BY:   July 25, 2018



Another op-ed from June 2017:

IEEFA Op-Ed: Blind Faith in Fossil-Fuel Industries Will Strand Economies, Communities, Workers

Markets Continue to Outpace Retro Government Policies

What’s missing from Donald Trump’s economically ludicrous promise to revive failed Rust Belt industries in the U.S. is an honest discussion of the economic and technological transition that is rapidly unfolding. New industries are growing that have already created many millions of jobs around the world and that will provide clean energy to power the 21st century.

This is not an “alternative fact”—it is the only game in town.

For the second straight year in a row the demand for coal has dropped. Renewable energy technologies are increasingly competitive with thermal electricity generation – without subsidies and without factoring in all the hidden costs of thermal power plants and their associated extractive industry requirements (think water pollution, emissions, coal ash, mercury).

Ahead of the opening of COP22 in Morocco late last year, the Institute for Energy Economics and Financial Analysis (IEEFA) published a report documenting key trends and milestones in the rapid transformation of the global energy economy. Our report, “2016: Year in Review – Three Trends Highlighting the Accelerating Global Energy Market Transformation,” examines the broad emerging patterns and highlights country-specific trends and key data on national and international investment toward renewables and clean energy technologies.

Throughout 2016, as with 2015, the indicators of great change in energy markets could be seen everywhere. But when examined holistically at a global level, the scale and pace of change is simply staggering – not entirely unexpected, but staggering nonetheless.

The breakthroughs have been dramatic. Our research found solar farms contracting to supply power at record low tariffs across countries as diverse as India, the United Arab Emirates, Chile, Argentina, Mexico and South Africa in 2016. Offshore wind farms are being tendered for off Germany that will supply electricity without subsidy, a decade ahead of the most bullish expectations even just last year. Rapidly falling costs of battery storage will allow time shift solar to power homes without interruption.

Australia’s policymakers and pundits need only to look at their neighbors in China and India to understand the breadth and scope of this transformation. The fact that we still have politicians holding up lumps of coal in our national parliament as some sort of testament to the fossil’s future is breathtaking in its stupidity, and indeed its complete failure to recognize some very simple basic economics.

This suggests stupidity on the part of our elected officials, simple economic illiteracy, or just sponsored obfuscation.

Away from the petty political sideshow of the Australian energy debate, on show for all to see at full steam the last few days, China and India are embracing clean energy as they seek to address local pollution, reduce energy imports, reduce fossil fuel imports – and protect the global climate. They boast economic growth rates more than twice that of the US – and they are embarking on transformative investments in their power sectors.

THERE IS MORE ECONOMIC ADVANTAGE FOR AUSTRALIA TO BE FOUND EXPORTING CLEAN ENERGY EQUIPMENT, finance, engineering, information and communication technology (ICT), and research and development know-how than in seeking to supply thermal coal into India and China’s oversupplied markets.

But the lessons from around the world are clear: successful clean energy industries need domestic policy support and regulatory encouragement.

Too often, as in Australia, incumbent mostly foreign owned fossil interests have proved adept at using well-paid lobbyists and generous campaign contributions to shift the playing field away from its clean energy competitors.

Looking at the donation patterns of these foreign owned fossil fuel companies, it would be hard to mount an argument that there was not a direct correlation between what they give and the spoils they get.

The Paris agreement does much to address this imbalance. It provides a roadmap that leads away from the fossil-fuelled economy of the past towards a global economy that is compatible with a sustainable climate. It gives encouragement to investors and entrepreneurs that they will find ready markets for low-carbon technologies.

Regardless of Trump’s decision or Australia’s weak commitment to the Paris agreement, the urgency of the climate change challenge means that those markets will still be created. Costs will continue to fall to a degree that fossil industries will be outcompeted. Investments in high-carbon infrastructure will likely become stranded, costing their owners dearly. Repudiating or shunning the Paris agreement may slow this process, but it won’t reverse it.

Tragically it will be the stranded economies, the stranded communities and the stranded workers and their families who will face the brutal fallout from the failure of political leaders to grasp, or even acknowledge, the greatest economic, financial and technological changes we have seen in nearly 150 years.

Tim Buckley is IEEFA’s director of energy finance studies, Australasia. A version of this column was published originally in The Guardian.


IEEFA Year in Review 2016: Rapid Change and Gathering Momentum in Global Energy Markets

IEEFA Update: The U.S. Energy Narrative Is Shifting

IEEFA Update: Wonder Where Electricity-Generation Markets Are Going? Follow the Money



even trade:

Trump trade policies won’t stop U.S. renewable energy growth experts say

S&P Global Market Intelligence ($):

The multi-front trade war being waged by the U.S. ranks as the most significant policy challenge for the country’s renewable energy industry under the Trump administration, according to industry insiders including Copenhagen Infrastructure Partners K/S Executive Director Will Demas.

Since imposing duties on foreign-made solar cells and panels in January, President Donald Trump has levied tariffs on imported steel and aluminum and is considering taxes on power electronics used in solar arrays as part of a broader package of import restrictions on $200 billion worth of Chinese goods.

“It’s definitely not background noise,” Demas, whose Danish firm is a part-owner of the Vineyard Offshore Wind Project in the U.S., said of the escalating trade feud on a July 25 conference call organized by the American Council on Renewable Energy. “I think there will be some slowdown as projects have to find new ways to become economic.”

Jonathan Yellen, a managing director at Mizuho Americas LLC, agreed that rising trade tensions are a “real concern” for the cost of renewable energy projects in the U.S. and the availability of capital. However, investors in Asia “are taking a little bit of a longer-term view and I think would expect that things are going to sort themselves out, notwithstanding choppiness in the near term,” said Yellen, whose firm is a subsidiary of Japan-headquartered Mizuho Bank Ltd.

Tensions between the U.S. and its trading partners are rising at a time when foreign investment is providing a boost to America’s renewable energy industry, investors say, helping to push up clean energy investment in the U.S. to $28.8 billion in the first half of 2018, 31% over the first six months of 2017, according to Bloomberg New Energy Finance. The surge is happening despite the Trump administration’s determination to prop up uneconomic coal-fired power plants rather than advancing cleaner alternatives.

“My impression is that people here … are not looking at the U.S. because they expect lots of favorable policies,” said Chris Archer, head of green energy in the Americas at Macquarie Capital (USA) Inc., a subsidiary of Australia-headquartered Macquarie Group Ltd. Instead, “they just see a huge opportunity irrespective of the details of the policy.” The Trump administration is unlikely to implement policies “that will be enough to stop the [renewable energy] industry in the U.S.,” he added.

More ($): Trade fights could dampen US clean-energy enthusiasm, but not kill it


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