Last month, Department of Energy (DOE) Secretary Rick Perry directed his department to conduct a 60-day study to “explore critical issues central to protecting the long-term reliability of the electric grid.” Specifically, the study is aimed at the impact on the grid from the recent wave of closures/retirements of baseload resources (over the past five years, 44.3 GWs of coal and 4.6 GWs of nuclear baseload generation capacity has been retired). The memo cites unnamed “grid experts” that are concerned “about the erosion of critical baseload resources,” “the manner in which baseload power is dispatched and compensated,” and “the diminishing diversity of our nation’s electric generation mix, and what it could mean for baseload power and grid resilience.”

The memo claims that many of the aforementioned concerns are the result of “regulatory burdens introduced by previous administrations that were designed to decrease coal-fired generation,” and “the market-distorting effects of federal subsidies that boost one form of energy at the expense of others [and that] create acute and chronic problems for maintaining adequate baseload generation and have impacted reliable generators of all types.”

Key Details

• The key issues to be assessed in the study include:
  • The evolution of wholesale electricity markets, including how federal policy interventions and the changing fuel mix are challenging the original policy assumptions that shaped the creation of these markets
  • Whether wholesale energy and capacity markets are adequately compensating for attributes such as on-site fuel supply that contribute to grid resilience, and, if not, the extent to which this could affect grid reliability and resilience in the future
  • How federal regulatory burdens, mandates, and tax and subsidy policies are responsible for forcing the premature retirement of baseload power plants
• Secretary Perry has requested the study, which is scheduled to be completed by mid-June, provide a thorough analysis of the issues as well as concrete policy recommendations and solutions

Implications

This study is in line with President Trump’s recent executive order on Promoting Energy Independence and Economic Growth (issued in March) as well as his campaign promise to rescind regulations on the energy sector that he believes are “overly burdensome and impact job creation.” The results of the study could have far-reaching impacts on state laws and Obama-era policies aimed at promoting renewable energy resources, as well as recently extended production and investment tax credits for wind and solar. When asked how the Trump Administration would respond to policies that are believed to undermine baseload resources, Secretary Perry indicated that maintaining baseload generation capacity is essential for national security and that the federal government may seek to pre-empt state laws to accomplish this objective. Depending on the outcome of this study and subsequent policy actions, the Trump administration could add additional complexity to the already blurred lines between state and federal authority over the nation’s energy supply. Regardless of the outcome of the study and subsequent policy actions, many utilities believe that changing economics and technology advancements (e.g., low natural gas prices that are expected to continue well into the future, the increasing cost competitiveness of renewable energy technologies, etc.) and customer desires (e.g., increasing interest in renewable resources) will continue to result in the transition of the industry toward a greater mix of clean energy resources.

More information

• Memo from Secretary Perry: Study Examining Electricity Markets and Reliability
• The Hill: Perry orders Energy Department study of electric grid
• Utility Dive: Perry orders DOE review of clean energy impacts on baseload generation
• Utility Dive: Why Utilities Don’t Think Trump Will Stop the Clean Energy Transition
• Bloomberg Politics: Electric Grid Study Ordered by U.S. Energy Chief to Boost Coal
• Greentech Media: How the Trump Administration Could Pre-Empt State Policies to Shore Up Baseload Power

This report is part of ScottMadden’s Regulatory Minute and Fossil Minute series. To view all featured Regulatory Minutes, please click here. To view all featured Fossil Minutes, please click here.

Contributing Author: Talha Sheikh