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Should Billions In Federal Subsidies Be Invested In Uneconomic Power Plants Or In Communities Facing Plant Closures?

By Sonia Aggarwal, Vice President of Energy Innovation and Director of America’s Power Plan.

FirstEnergy Solutions’ coal and nuclear power plants are facing serious economic challenges, along with the workers and communities that depend on them, and are hoping for a billion-dollar bailout from the Trump Administration.

The company filed a deactivation notice for three of their power plants in March, just submitted closure plans for those plants to the federal government, and filed for bankruptcy this spring – calling into question the future of at least three more power plants that are exposed to the competitive market.

New research shows FirstEnergy would be the recipient of an estimated $2 billion in subsidies over just two years if the Trump Administration’s coal and nuclear bailout becomes reality . They’d be kept online through payments that contradict market economics, but the fundamental economics causing their distress won’t change. And when these funds do dry up, the power plant workers and host communities facing economic distress would be right back where they are today – wondering what comes next after power plants close.

So what if instead of using billions to bail out FirstEnergy and other big power plant owners for a couple of years, funds were redirected to help communities with power plants that can no longer compete in power markets?  What if those funds went to communities—rather than a few power plant owners —to support the inevitable transition, diversifying local economies and creating a longer-lasting solution?

The new reality of energy economics means coal and nuclear can’t compete

Fast-falling clean energy costs are making many old power plants around the country unable to compete. Coal and nuclear are now more expensive than alternatives like natural gas, wind energy, and solar power in regional power markets designed to avoid expensive options and cut customer costs.

Natural gas prices are near the lowest point they’ve been in 15 years, solar and wind power costs dropped below those of building coal and nuclear power in 2017, renewable energy costs are forecast to keep falling through 2050 while the cost of operating coal and nuclear plants keeps climbing due to needed upgrades as plants age.

But even recognizing this shifting economic reality fails to answer the critical question about what comes next for the workers and communities who depend on these power plants, and how they can transition economically.

Billions to prop up power plants, but underlying economics not changing

The Trump Administration’s bailout plan was laid out in a memo publicized on May 29, when the U.S. Department of Energy proposed mandating direct payments to these uneconomic power plants, in an attempt to reverse a wave of plant closures.

However PJM, the nation’s biggest regional power market operator, says it does not need the coal and nuclear power plants in question to ensure the lights stay on.

Cost estimates for this bail-out proposal range from $10 billion a year, according to Energy Innovation’s conservative estimate, to a middle range of $17-$35 billion a year, and all the way up to “priceless” according to DOE Secretary Rick Perry.

We assessed FirstEnergy’s coal and nuclear fleet in Ohio, Pennsylvania, and West Virginia to see how this might play out.  The plants would need about $1 billion annually to remain profitable today and if we assume the Trump Administration’s bailout subsidies last two years, as implied in the DOE memo, FirstEnergy would receive about $2 billion in total subsidies.

Since energy sector economic trends are showing no signs of reversal (wind and solar costs fell 67% and 86%, respectively, between 2009 and 2017), these subsidies would at best delay power plant closures for a few years.  Billions will have been spent to support FirstEnergy, and the communities and workers that have hosted these plants for decades will still face closure threats a couple years later.

Invest in local economic development solutions, not expensive life extensions for unneeded power plants

However, if that $2 billion was allocated directly to each of the six communities that host these power plants, the funds could generate more than $300 million per community in economic transition investment.

Local governments, economic development organizations, and the workers themselves could decide how to direct those funds: Diversifying and strengthening local economies, supporting workforce development programs, or building new facilities and infrastructure.

This approach isn’t new: Community leaders and residents in Tonawanda, located outside Buffalo, recently created a redevelopment blueprint to replace tax revenue and jobs after a coal plant closure. New York State is helping fill in tax revenue gaps during the transition, and the seven-year support program for Tonawanda is expected to cost less than $45 million. A similar approach for other regions could be a more productive application of the Trump subsidies.

States that host these uneconomic power plants could do something similar with proactive transition planning, and governors and state legislators could press the federal government for this solution.

Build community prosperity, don't bail out uneconomic power plants

If the Trump Administration wants to reduce negative impacts of power plant closures within the communities that host them, it should prioritize the long-term health of those communities and workers to support a responsible transition.  That way, money will not be wasted, communities can decide their future, and local economies can diversify.

Rather than staving off the inevitable for a short while, these funds could provide an opportunity to open a path to prosperity.

Original post

Content Discussion

Bob Meinetz's picture
Bob Meinetz on September 10, 2018

Sonia, your attempts to associate nuclear with coal insult the intelligence of EC readers. In 2018 we’re aware nuclear is a robust energy solution with no carbon emissions; that coal is responsible for hundreds of megatons of CO2 emissions in the U.S. alone.

We’re aware the idea nuclear is “uneconomic” is fabricated nonsense. Diablo Canyon Nuclear Power Plant (California) generates carbon-free electricity at a marginal cost of 2.7¢/kWh - cheaper than coal, cheaper than gas, cheaper than than renewables + [insert backup crutch here]. Yet Diablo Canyon has been scheduled for shutdown in 2025, thanks to oil company lobbying efforts together with irrational public fear.

Hurricane Florence, now bearing down on the Atlantic seaboard, has been upgraded to a Category 4 storm and willl result in $billions of damage for coastal residents and businesses to absorb. The knowledge climate change will cause even more severe storms might give pause to states anxious to close nuclear plants, which can make an investment in them now and be part of the solution. Or, they can shut them down and be part of the problem, then pay $billions twenty years from now to recommission them after renewables + [insert backup crutch here] predictably disappoint.  

“A stitch in time saves nine,” my Mom used to say.

Ned Ford's picture
Ned Ford on September 13, 2018

Bob, you are deeply misinformed about the cost of nuclear power.  FirstEnergy nukes have been poorly maintained and need billions of dollars in "retrofits" to keep running.  The PUCO gave them $600 million over the three year period which we are in the middle of, and they replied "not enough".   

You are probably correct about the OPERATING cost of Diablo Canyon, and most of the other U.S. nuclear plants, but that neglects the capital cost to build and the massive cost of major repairs when plants reach "a certain age".    South Carolina just abandoned the Summer plant at $9 billion on the way toward a $24 billion completion price which would have required something like 18 cents per KWh to pay off.

In the real world, we can't ignore all the costs. 

 

Bob Meinetz's picture
Bob Meinetz on September 21, 2018

"FirstEnergy nukes have been poorly maintained and need billions of dollars in "retrofits" to keep running..."

Ned, FirstEnergy seems to disagree with that assessment:

FirstEnergy Solutions Files Deactivation Notice for Three Competitive Nuclear Generating Plants in Ohio and Pennsylvania

FE only wants some recognition of their zero-carbon status, and points out it would be a helluva lot cheaper - for consumers - than building new gas plants that generate millions of tonnes of CO2 each year, or new plants that run on wind and sunshine in an area where there is little of either.

Your implication nuclear plants check out at "a certain age" is antinuke folklore without basis in fact. All U.S. nuclear plants are consistently maintained and subject to annual NRC inspections, and there is nothing preventing a nuke plant from operating indefinitely.

In the real world of Southern Electric, the company is absorbing $1.1 billion in additional costs to finish Vogtle 3 & 4. Be sure to point out to Southern's boardmembers how unprofitable nuclear is - by your reckoning, they're making a horrible mistake.

In my inbox today (9/21):

Plant Vogtle set to hire more skilled workers

Some 1,500 skilled workers will be hired in the next 18 months for the Plant Vogtle expansion in Georgia, says Southern Nuclear communications coordinator Michael McCracken. There's plenty of "hands-on commodity-type work that is going to require a lot of people," but "the largest components are there," he says.

They just get in deeper and deeper.

Ned Ford's picture
Ned Ford on September 18, 2018

What I have said is what FirstEnergy has filed in its requests for subsidies. 

I don't need to comment on Southern Company.  Their shareholders will do a good enough job, once they figure out what has happened to their once profitable investment.  Read about what is happening to the Summer plant owners right now. 

Under Ohio law utilities are required to bid for power.  In the first such auction, in 2013, FirstEnergy's first auction failed to clear 60% of their own resources.  They continue to sell the power at lower prices on the spot market but they need massive infusion of cash.  Not all nuclear plants need major retrofits at any given time.  The Ohio plants are in especially bad shape.  What is your logic in fixating on the word "Competitive" and ignoring the word "Deactivation" in the article you cite?

 

Bob Meinetz's picture
Bob Meinetz on September 19, 2018

"Their shareholders will do a good enough job, once they figure out what has happened to their once profitable investment."

No, you don't need to comment. But it seems Southern might pay you a handsome consulting fee to share your wisdom with them, since you've already figured out what will happen to their investment decades from now. Something to consider.

FirstEnergy doesn't want to bear the added cost of providing carbon-free, round-the-clock energy to their customers. Why should they? It's a social cost, one with benefits to not only customers but everyone in the area (and world), and Ohio lawmakers aren't willing to approve a zero-emission credit for facilities which deserve them:

"We call on elected officials in Ohio and Pennsylvania to consider policy solutions that would recognize the importance of these facilities to the employees and local economies in which they operate, and the unique role they play in providing reliable, zero-emission electric power for consumers in both states. We stand ready to roll-up our sleeves and work with policy makers to find solutions that will make it feasible to continue to operate these plants in the future." - Don Moul, President, FES Generation Companies

If you think solar and wind wouldn't be struggling without the lavish subsidies being heaped on them by Ohio, that anyone in the state would be willing to pay full price to put solar panels on his or her roof, that solar-plus-wind-plus-gas-backup is cheaper, cleaner, more reliable, or safer than utility nuclear, you're sorely mistaken.

Ned Ford's picture
Ned Ford on October 10, 2018

Not sure why this popped up after a month, but I'll take a moment to comment.  Ohio's "lavish subsidies" to wind and solar are so small that 95% of Ohio's wind generators ignore the program.  (This is the state Renewable Portfolio Standard).  Regional power brokers stopped reporting wind REC's (Renewable Energy Credits) for a couple of years.  Rooftop solar still needs subsidy, but the amount of rooftop solar is negligible in a climate conversation - today.  Utility scale solar does not need the subsidy, and the recently proposed 400 MW's of solar (AEP, the other large distribution utility in Ohio) is many times the size of the state RPS for solar.  In other words the industry is proceeding without subsidy.  AEP also proposes 500 MW's of wind.

One utility states plainly that wind and solar will lower its rates, while the other begs for handouts and rate increases in multiple regulatory forums.  That's a "go figure" moment for most people.

Wind and solar need zero backup in today's grid until wind and solar EACH exceed total consumption for more than a few seconds per year.  Spend some time with Iowa's data.  Iowa will get more than 50% of its electricity from wind this year.  It has no solar, no hydropower, no storage and an insignificant amount of natural gas generation, and they are still not clattering to the ground because they can't integrate their wind into the grid.  Anti-clean energy rhetoric will be around for a while, but it is false and people who like to make a profit are figuring that out fast enough. 

 

Bob Meinetz's picture
Bob Meinetz on October 10, 2018

Ned, the federal Renewable Investment Tax Credit (ITC), which allows Ohioans to deduct 30% of the cost of their solar array from their income tax, is one of over fifty different incentives permitting Ohoians to soak U.S. taxpayers for the cost of their intermittent renewable energy. Yes - “lavish” (whether Ohioans need the credit or not, they’re still taking it).

Of course, every utility claims renewables will lower customer rates. There’s just one problem with that statement - it’s wrong:

If Solar and Wind Are So Cheap, Why Are They Making Electricity So Expensive?

No, Iowa will not “get more than 50% of its electricity from wind this year”. 37% of its electricity came from wind in 2017, and it might reach 40% by 2020. You’re correct that the state incorporates “an insignificant amount of natural gas generation,” because coal is cheaper. That’s right - more than 50% of Iowa’s electricity comes from burning coal.

Maybe that’s what you were thinking.

Ned Ford's picture
Ned Ford on September 13, 2018

The premise of this article is good, but it misses a couple of huge points.  Wind and solar are now so cheap they are substantially below the cost of operating natural gas plants, as well as coal and nuclear.  And U.S. spending on utility efficiency programs is over $7 billion per year.  This spending probably saves about seven to ten dollars for every dollar spent, but there isn't an organized effort in either government or the private sector to pronounce a net benefit.  It is widely agreed that efficiency savings cost 1.2 to 2.4 cents per KWh saved via these programs.

Since wind and solar are so cheap, and efficiency is so abundant, there is a small, but easily managed need to facilitate retraining.  In many cases, coal and nuclear plant operators are close to retirement, and can be paid for a decade while plant closures are managed, by which time they are likely to want to retire.

Attention needs to be paid to siting wind and solar close to fossil and nuclear plants.  More jobs are created in the construction than in operation, and manufacturing facilities are easier to site than renewable generation. 

But the bottom line is that wind and solar are tremendously profitable, and the job creation comes as a bonus.   I never thought I could count on it, but we now have utility executives promising to lower electric rates with renewables. 

Efficiency creates as many or more jobs as wind and solar, but it requires special attention to cost recovery to ensure that the utilities have a real economic interest.  Incentives don't have to be huge, but they must be comparable to rate of return and that measurement varies a lot from state to state and utility to utility.

The problem which faced the nation when the ARRA funds were made available was finding enough "shovel-ready" work to ensure that the funds were spent well.  Not all of them were, but we did better than Europe in climbing out of the Recession.  We should not be careless about how we allocate our economic resources now.  $200 million per community is absurd given that most of the communities in question only have hundreds of employees working in the plants.

 

Bob Meinetz's picture
Bob Meinetz on September 17, 2018

Ned, carbon-dependent wind and solar have been losers for fifty years and will always be. Generating electricity with either is not "substantially below the cost of operating natural gas plants," when both require natural gas plants to be viable.

Agree that "attention needs to ber paid to siting wind and solar close to fossil and nuclear plants." That's because transmission networks have been designed with those plants as the hubs - dispatchable sources which are not subject to the whims of nature. Unfortunately, the wind doesn't always blow at those locations, and the sun doesn't always shine, so they require building transmission. That's expensive. It's why AEP just cancelled what was to be the nation's largest wind farm.

"Efficiency", a lack of consumption often portrayed as a source of energy by unthinking advocates, can help stave off energy needs - temporarily. Once the low-hanging fruit are picked, it's unscalable. Gone, forever.

Wayne Lusvardi's picture
Wayne Lusvardi on September 18, 2018

Re: "Wind and solar are now so cheap they are substantially below the cost of operating natural gas plants, as well as coal and nuclear."

This may be so but this does not include cost shifting onto other customers using conventional power. 

 

Joe Deely's picture
Joe Deely on September 20, 2018

Bob,

You seem pretty optimistic that the Vogtle upgrades will actually get finished.

I'd say its 50-50.

Lawmakers want cap on Vogtle costs.

JEA wants to back out.

Lawsuits raise stakes on Vogtle Nuvlear Expansion Vote

Fate of Vogtle Nuclear Expansion Hinges on Minority Owners

Southern Co. CEO Tom Fanning was essentially asked during the company’s second quarter earnings call what would happen if a member of the joint ownership group chose not to continue the project. Fanning responded, “Yeah, so, the technical answer there is that the project would be deemed to be cancelled, I believe. And then, of course, you could take a variety of different paths beyond that. But the technical answer is, if you don’t get the 90% vote, the project is cancelled. Then you have to figure out how or whether to proceed beyond that. There is no prescription per se beyond that action. Of course, we could all negotiate—whatever—but that would also require Public Service Commission approval and a variety of other things.”