DOE Grid Study provides insight, despite controversy
The U.S. Energy Department’s much-discussed grid study, released this week amid a swirl of pre-publication controversy, offers a thoughtful and empirically based approach to examining current and future issues facing the electric grid. There’s insights here for Congress and the Trump administration’s executive agenda, and it provides a starting point for a civil dialogue on electricity policy under this administration.
R Street – “Free markets. Real solutions”
Critics decried the study long before it saw the light of day, calling it, among other things, a “fake study” and pro-coal propaganda. Some of the initial concern was valid, as when Energy Secretary Rick Perry suggested possible federal intervention to prevent unprofitable coal and nuclear plants from retiring in the name of national security (for the record – there is no case for doing that).
But while reasonable people can disagree with aspects of the study, it is not reasonable to dismiss it as propaganda. Ironically, all the chuffing has made critics look hysterical. The ball is now in their court to respond productively. Taken together with President Donald Trump’s decision to reject a moratorium on coal plant retirements, this report signals that this administration is serious about pursuing market-enhancing policies.
The study sets the right tone by identifying market forces, not environmental regulations or subsidies, as the principle drivers of coal and nuclear retirements. It even approached the sore subject of workforce transition, which is a difficult but appropriate conversation as market dynamism drives creative destruction in electricity markets. It accurately notes that neither a growing amount of renewables nor a trend of baseload retirements have created problems with reliability. At the same time, force-feeding changes in the generation mix—using subsidies and mandates that outpace the ability of market design and utility planning processes to adjust—could cause those problems. The study examined the implications of regulations and subsidies with appropriate tenacity and offered a reasonable set of recommendations.
The recommendations are consistent with industry experience and empirical evidence. They emphasize improvements to price formation in wholesale markets and encourage the Federal Energy Regulatory Commission to study creating market mechanisms for essential reliability services. The report also encourages efforts to examine resiliency, a distinct concept from reliability, which is another reasonable request for electric industry stakeholders. In the report’s cover letter, Perry recognizes that it’s important consumers know a resilient grid comes at a price. This also should be encouraging, as all too often, the electric industry fails to balance the benefits of reliability and resiliency with the costs.
The report’s infrastructure development recommendations prioritizes some no-brainers long overdue for reform. It calls attention to the challenges that face fossil-fuel generators under New Source Review regulations. This Clean Air Act program can have perverse effects on environmental outcomes and create excessive industry burdens. Scholars have proposed methods to revise the program to reduce the burdens, while maintaining environmental quality. The report also offers helpful ideas for a forward-looking research and development agenda, improving the coordination of the electric and natural gas industries and areas for further research.
Addressing the plight of nuclear, the report correctly notes the need to revisit safety regulations under a risk-based approach. Similarly, hydropower regulatory reform is well past due. An R Street paper released the same day as the DOE study identified 12 priorities to ebb the flow of hydropower red tape. Our report agrees with the DOE about the need to reduce regulatory burdens on hydropower licensing and relicensing processes.
Altogether, the DOE study injects civility and reasonableness into the dialogue of our electricity future, at a time when such policy too often comes down to emotion over empirics. In particular, a cultural battle over picking favorite fuel types has resulted in a maze of distorting subsidies and preferential treatment, while distracting us from the imperative of bolstering market performance.
One can only hope that folks across the spectrum will use the DOE study to launch a sustained dialogue that guides the kinds of sensible legislative and regulatory reforms that can empower markets and consumer choice.