DOE’s Highly Anticipated Grid Reliability Study Faults Natural Gas for Baseload Power Plant Retirements

The U.S. Department of Energy released its highly anticipated grid reliability study on Wednesday. The report’s main conclusion faults low natural gas prices as the driving factor for most baseload power plant retirements, rather than environmental regulations and renewable energy incentives—a conclusion that should not come as too much of a surprise to anyone in the power sector.

In an April memo, Secretary Rick Perry ordered the DOE to review if Obama administration’s clean energy incentives were responsible for undermining baseload resources such as coal and nuclear, which together account for half of U.S. electricity generation, thereby making the grid less secure. Secretary Perry later warned that the White House could overrule state energy policies, such as renewable portfolio standards, on national security grounds if reliability was found to be threatened. Not surprisingly, the wind and solar energy industry were predictably alarmed, fearing that it was yet another attempt by the Trump Administration to dismantle decarbonization policies. 

The DOE staff took four months to pull together a massive review of current market policies and the impact of new technologies such as wind and solar power on the nation’s electric grid. And the final draft (a leaked version of the report was released last month) doesn’t resemble the anti-renewables tirade that many assumed it would be.

Instead the report identifies low natural gas prices as “the biggest contributor to coal and nuclear plant retirements” and recommends that power markets revise how they value coal and nuclear power. In addition, the report identifies flat electricity demand, federal and state policy interventions such as federal tax credits for wind and solar and state renewable portfolio standards, and the emergence of variable renewable energy as secondary factors.

The report does not find, as some had feared, that renewables threatened grid reliability, a conclusion widely held by grid operators and utility executives.

Grid operators across the country have noted that they are facing no difficulty in managing an increasingly diverse set of resources. The PJM Interconnection, which manages the electric grid in several mid-Atlantic and Midwestern states, modeled a future with more wind and solar power, cheap natural gas, and retiring nuclear and coal power plants. It found that this increasingly diverse generation mix doesn’t threaten grid reliability.  Similar conclusion has been reached by the California Independent System Operator and two recent reports by Analysis Group and The Brattle Group that found that new generation resources do not harm the reliability of the U.S. electric grid and in fact present new opportunities for flexibility, efficiency, and other grid services. In addition, many utility leaders agree that it is only a matter of time before renewable energy resources dominate their grid systems. In a KPMG survey of 150 senior energy industry executives, more than 60 percent of the respondents said that they believe the United States will get half of its power from renewable energy by 2045 or sooner.

It is still unclear where the DOE will go from here. The report, however, does offer eight recommendations for the DOE, the Federal Energy Regulatory Commission or FERC, and other federal agencies. It asks FERC to “expedite its efforts with states, RTO/ISOs, and other stakeholders to improve energy price formation in centrally-organized wholesale electricity markets,” and create fuel-neutral markets that adequately compensate resources for essential reliability services to the grid.

The study also recommends that federal agencies expedite permitting for hydroelectric, coal, and nuclear plants.

It also recommends encouraging the Environmental Protection Agency to “allow coal-fired power plants to improve efficiency and reliability without triggering new regulatory approvals and associated costs,” and that the DOE should target an R&D portfolio to help those plants boost efficiency. It is unclear how the DOE would proceed with that recommendation given the costliness of carbon capture sequestration technologies and the Trump administration’s proposal to slash funding for energy R&D.

The DOE will take public comment on the study though it is not clear how long the window to comment will last.