DOE Secretary Rick Perry: “Resiliency Pricing Rule” for Coal-fired and Nuclear Power Plants

Guest post by David Middleton

  • DOE = United States Department of Energy
  • FERC = Federal Energy Regulatory Commission

OCT 2, 2017

Rick Perry Directs FERC To Complete Final Action On Resiliency Pricing Rule In 60 Days

Rod Adams , CONTRIBUTOR

One of the most sweeping changes to the U.S. electricity supply market in the past two decades may be implemented before the coming winter heating season. The brief bottom line of the change is that eligible power sources will be able to participate in a details-to-be-determined rate structure that allows the owner to recover its “fully allocated costs” plus a “fair return on equity.”

Eligible grid reliability and resiliency resource is any resource that:

  1. is an electric generation resource physically located within a Commission-approved independent system operator or regional transmission organization;
  2. is able to provide essential energy and ancillary reliability services, including but not limited to voltage support, frequency services, operating reserves, and reactive power;
  3. has a 90-day fuel supply on site enabling it to operate during an emergency, extreme weather conditions, or a natural or man-made disaster;
  4. is compliant with all applicable federal, state, and local environmental laws, rules, and regulations; and
  5. is not subject to cost of service rate regulation by any state or local regulatory authority

All licensed nuclear power plants and a significant portion of existing coal plants can meet those requirements today.

[…]

Along with his letter, Secretary Perry enclosed a Notice of Proposed Rulemaking (NOPR) that directs the Commission to either take final action within 60 days after publication of the NOPR in the Federal Register (which has not yet occurred) or to issue the proposed rule as an interim final rule. Any rules included in the final action will go into effect within 30 days after publication.

The Summary section of the NOPR includes statements with legal justification for the FERC’s authority to issue the proposed rule without an Environmental Assessment or an Environmental Impact Statement.

It also provides an analysis concluding that the proposed rule does not have any significant economic impact on small entities and thus does not need to meet certain description and analysis requirements of the Regulatory Flexibility Act of 1980 (RFA).

[…]

My Conclusion

Free market purists like R Street may have complained a bit about the hand on the scale in favor of renewable energy resources, but their expressed faith in the market decision making process really triggered by the idea that coal and nuclear plants might not be forced to retire.

As a lifelong fan of reliable electricity who has visited places where brownouts and rolling blackouts are an accepted fact of life, I do not support the Enron-conceived notion that electricity is just another tradable commodity with opportunities for fabulous rates of return in certain conditions.

Blackouts and brownouts impose a far greater cost on the overall economy that most people realize. Electricity is too important to be left to the vagaries of short term markets, especially since the markets have already been tipped heavily in favor of unreliables and natural gas.

Wind and solar power advocates are either confused or disingenuous when claiming that their power sources, which – by definition – cannot be well protected from the weather, are reliable and provide resilience.

The American Petroleum Institute and its partners in the natural gas industry are mad because their long running price war against coal and nuclear may be interrupted before it achieves its desired objective of driving out enough of its competitors to give it scarcity pricing power.

The rule makes sense. The urgency is justified. I fully expect that there will be numerous interests that will seek delays because those will help them achieve their objective of forcing permanent plant closures.

It is too bad the rule wasn’t implemented in time to save valuable, emission-free, fuel-secure assets like Vermont Yankee, Kewaunee, and Ft. Calhoun. Fortunately, it looks like it might have been issued in time to save a couple of dozen other nuclear plants that are at risk of prematurely closing in the next five years.

Forbes

If enacted, this resiliency plan would lead to lower electricity rates than would occur if nuclear and coal-fired plants continue to shut down. The loss of base load capacity would lead to greater dependence on inefficient and expensive “peaker” power plants.

In a purely laissez-faire world, natural gas combined cycle (NGCC) would be the only type of power plant being built. No other type of new power plant has an honestly positive NPV (net present value) using a realistic discount rate. This would be great for my industry (oil & gas), but eventually bad for electricity consumers, because it would drive up natural gas prices. Unlike Australia, we have more than enough natural gas production to meet domestic demand and become a world leader in LNG exports. However, we can’t bet the farm on fracking and shale plays. All shale plays eventually peak. The Marcellus is huge… but it will eventually peak. As natural gas prices gradually creep up from $3/mcf to $5-8/mcf over the next ten years, existing coal and nuclear power plants will become very competitive with NGCC… But, only if those power plants are still existing.

Given a choice between subsidizing reliable base load power plants or unreliable non-dispatchable power plants, it would be foolish to choose the latter.

This isn’t a random pattern:

 

Electricity costs as a function of per capita installed renewable capacity. Wind and solar only, excludes hydropower. [Updated to add Australia and correct the units] – Source: Willis Eschenbach

 

Part of Australia already has the most expensive electricity in the world…

Although the causes of Australia’s high electricity prices are a bit more complicated than Germany’s or Denmark’s. The costs are skyrocketing due to a lack of investment in fossil fuel infrastructure and the inability of wind & solar to actually replace coal…

What caused the power price spike?

There are two main causes of the sudden jump in electricity prices. And despite the frothing anger from the shock jocks, it has nothing to do with the rise of renewables.

The main cause is a lack of investment. And the second is the soaring price of gas.

As old coal-fired plants have been retired, there has been insufficient investment to replace them because power companies have been left in policy limbo over carbon pricing.

[…]

How does gas affect electricity prices?

The second contributor to soaring electricity prices has been the sudden spike in gas prices.

In the absence of any political leadership, the power industry correctly figured renewables such as wind and solar eventually would be cheaper and more efficient than coal. That is because the fuel — wind and sun — is free and the maintenance costs of the plants is low.

The problem with renewables is their unreliability. Given Australia’s gas abundance, the idea was that gas would cut in whenever there was an energy shortfall.

Unlike coal plants that take weeks to fire up or shut down, gas turbines can be turned on and off at short notice, making them ideal to fill the breech when renewables are offline.

As the last player to enter the market, during power shortages, gas becomes the overall price setter. In case you have not noticed, gas prices have quadrupled because the exporters — many of which are the electricity generators — have sold more gas to offshore customers than their reserves. So, they pillaged local supplies, sending domestic gas prices through the roof.

[…]

ABC (Aus)

This sentence is 100% disingenuous:

And despite the frothing anger from the shock jocks, it has nothing to do with the rise of renewables.

The “rise of renewables” may not be the direct cause of Australia’s high electricity prices. However the transition from coal to [fill in the blank] is the direct cause.

Unlike the US, Australia doesn’t produce enough natural gas to export large volumes of LNG without driving up domestic prices.   Australian LNG landed in Japan is actually 40% cheaper than natural gas produced and sold in Australia.

Australia’s coal-fired plants are shutting down and being replaced by unreliable wind & solar and expensive natural gas plants. Claims that wind & solar are now less expensive than coal per MWh are wholly irrelevant. Solar and wind have to be 1/4 to 1/2 the price of coal per MWh to compete. And, even then, they can’t actually provide base load, because they are non-dispatchable.

Even if we assume this is accurate, neither storage nor back-up is factored into the cost of new power generation.

Let’s assume that they can purchase battery backup for $140/kWh and the Li-ion cells last 10 years. Over ten years, $140/kWh works out to about $38.50 (US) per MWh of generation.

Over the twenty year lifespan of the wind and solar power plants, the batteries would have to be replaced once.  That brings the storage cost up to $77 (US) per MWh of generation.  Convert to AUD and it’s $99/MWh.  Tack that on to the LCOE:

Energy supply Cost of energy w/Storage  (AUD/MWh)
Solar $177 $239
Wind $160 $217
Ultra supercritical coal (so-called “clean coal”) $134 $203

Wind & solar only appear to be affordable…

Until you add in the cost of storage…

(CCGT = combined cycle gas technology.  OCGT = open cycle gas technology, a common type of “peaker” generator.  AUS $8/GJ ~ US $6.30/mcf)

Even with Australia’s high natural gas prices, combined cycle natural gas and coal are much cheaper than wind & solar, if you factor in the storage costs.

Australia’s electricity rates have skyrocketed because they didn’t maintain their base load capacity (mostly coal-fired generation). Perry’s resiliency pricing plan would prevent this from happening here.  While allowing natural gas to kill coal & nuclear would be very good for my industry, in the long run, it wouldn’t be good for grid resiliency, electricity consumers or our nation’s energy security.

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123 thoughts on “DOE Secretary Rick Perry: “Resiliency Pricing Rule” for Coal-fired and Nuclear Power Plants

  1. To all of those with factories in the EU and South Australia:

    Bring me your tired of paying high electrical rates, your poor rates of return on investment, I lift my $.10 kwh lamp beside the golden door.

    (Apologies to Emma Lazarus)

      • I was shocked last month to see the cost of my electricity to be over 10 cents per kwh. I remember the local utility saying 20 years ago that they could not see the price ever getting to 10 cents — but that what was before the “green” generation mandates.

        BTW, the local utility gets to earn a profit on investments in makes in adding insulation to customers’ homes and businesses. it was foolish of me to pay for my own insulation, I should have had the utility do it for me.

      • Here in Alberta the cost of generating natural gas-fired or coal-fired power is about 2-4cents/KWh.

        Then this cost ~QUADRUPLES due to the way our idiot politicians have mismanaged the costs of Transmission, Distribution and Administration. Costs also increase due to the addition of unreliable, non-dispatchable wind power.

        Alberta recently added a new $2 billion DC transmission line that actually has higher (AC-DC-AC Conversion + Line) losses than the old AC system, because the AC-DC-AC conversion losses are about 5%, much higher than the line losses of the old AC lines (which obviously require no AC-DC-AC conversion).

        Then had to take power off the old AC lines and put it on the new DC line – otherwise the new DC line would have run at less than 10% of capacity.

        The math IS that simple, but clearly too much for our Alberta politicians.

        Warren Buffet owns the new DC line and gets a guaranteed utility rate-of-return from this nonsense.

        Preliminary Scoping and Engineering was apparently done by Phoebe Buffet.

      • ALLAN MACRAE

        October 19, 2017 at 11:10 am

        Your last comment –
        “Warren Buffet owns the new DC line and gets a guaranteed utility rate-of-return from this nonsense.

        Preliminary Scoping and Engineering was apparently done by Phoebe Buffet.”
        – if accurate – and I do not dispute for a moment whether it is [having no knowledge of that specific installation, suggests why Warren Buffet is one of the – at least – ten wealthiest folk on the planet.

        [Is it true that by far the wealthiest is one Vladimir Putin (past Prime Minister of Russia)?]

        Auto

  2. Even in a pure laissez-faire environment, managers building assets with expected life expectancies of 30 to 50 years, are going to plan for contingencies.
    Just because nat-gas prices are lower today is not proof that this situation will always be the case.
    As the author himself has pointed out, additional demand on nat-gas as well as the drop in the demand for coal has already resulted in the price advantage for nat-gas all but disappearing.

      • The Japanese site LNG storage at some of their combined cycle plants to provide on-site back=-up fuel storage.

      • I think that will happen here, too, once someone decides that they have the room to inventory the NG. However, there will be costs associated with the storage that will need careful calculation.

      • The US has had LNG “peaking” plants for decades. The one I know of is in a suburb of Atlanta. During the summer and other periods of readily available gas, they make LNG. Then, when NG is in short supply they regassify it.

        It has been a couple years since I looked at the list of US domestic LNG plants, but as I recall there was over a million gallons per day of LNG production capacity dedicated to peaking plants.

        I don’t know what their storage capacity is. But LNG has a limited shelf life. There is about 0.1% boil-off per day even in the very best storage tanks. That’s 3%/month. It’s not too bad, but you don’t want to hold LNG for very many months.

  3. “There are two main causes of the sudden jump in electricity prices. And despite the frothing anger from the shock jocks, it has nothing to do with the rise of renewables.

    The main cause is a lack of investment. And the second is the soaring price of gas.

    As old coal-fired plants have been retired, there has been insufficient investment to replace them because power companies have been left in policy limbo over carbon pricing.”

    The 3rd paragraph directly contradicts the first.

  4. Why is it assumed that you need to store as much energy as is being produced? Wouldn’t that only be the case if the capacity factor was around 50%&

    • The capacity factor of nuclear is ~90%, coal and gas are ~85%. Wind is ~30-35% and solar is 25-30%.

      It takes 2-3 MW of wind or solar to replace 1 MW of coal, gas or nuclear, if you are storing 1-2 MWh for every MWh delivered when it’s windy and/or sunny.

      • You need to re-emphasize this more often. Most people don’t realize the need for storage, and how much of the “capacity” of it needs to be diverted to the storage even when it’s windy/sunny. That’s part of the message that’s frequently being missed and/or ignored.

      • Consumers need reliable power supply at low and predictable prices. Energy companies that base their energy supply on unreliables should be required to complement their unreliable energy sources with facilities that together provides a reliable power supply. The costs of providing a stable power supply can not be disregarded when considering intermittent energy sources.

      • My thought was that you’d need at the very least 2 MWh of battery storage and 3 MW of turbines for each 1 MW supplied if wind blows only 33% of the time (2 MW and 1 MWh would be the case if wind CF was 50%).
        For example, if wind blows for an hour then calms for 2 hours, a 3 MW turbine could fully charge the battery and keep delivering 1 MW of electricity to the grid while the wind is blowing, and when it’s still the battery would discharge providing the same 1 MW over 2 hours.
        Which means that those costs should be double of what was calculated in the article, putting the price of wind/solar + battery system higher than that of OCGT.
        And that’s the ideal scenario, in the real world wind is more erratic and periods of stillness can be longer, so you’d need even more batteries.

      • My example was intended to be simplistic. The real world storage and/or backup requirements for most wind & solar farms would be highly variable.

    • Design for worst case conditions
      Sobaken Though Germany has had to export solar/wind during peak summer conditions, in December 2016 its solar/wind supplied ONLY 3% of demand due to clouds and doldrum wind conditions. So you have to provide backup for the WORST case conditions of 97%, not just the average. See
      A Dose Of Renewable Energy Realism, November 26, 2016/ Francis Menton
      http://manhattancontrarian.com/blog/2017/1/12/a-dose-of-renewable-energy-realism

      • I tend to agree Mr Hagen. One should assume the need for ~100% conventional backup for wind power, in the absence of a hypothetical “super-battery” that may not exist in practical reality. When wind dies, typically on very hot or very cold days, the amount of power generated typically approaches zero.

        Mr. Middleton, thank you for your very good post. You wrote in your comments:
        “Wind is ~30-35%.”

        This is termed the Capacity Factor, and in Germany it equals about 28%? Capacity Factor equals {total actual power output)/(total rated capacity assuming 100% utilization).

        However, the true factor that reflects the intermittency of wind power Is the Substitution Capacity*, which is about 5% in Germany today. This is the amount of dispatchable (conventional) power you can permanently retire when you add more wind power to the grid. In Germany they have to add ~20 units of wind power to replace 1 unit of dispatchable power – utterly uneconomic!

        These figures were published in 2005 but have been ignored by our imbecilic politicians.

        Regards, Allan

        *Source: “E.On Netz excellent Wind Report 2005” at
        http://www.wind-watch.org/documents/wp-content/uploads/eonwindreport2005.pdf

        Excerpt:

        In 2004 two major German studies investigated
        the size of contribution that wind farms make
        towards guaranteed capacity. Both studies
        separately came to virtually identical conclusions,
        that wind energy currently contributes to the
        secure production capacity of the system, by
        providing 8% of its installed capacity.
        As wind power capacity rises, the lower availability
        of the wind farms determines the reliability
        of the system as a whole to an ever increasing
        extent. Consequently the greater reliability of
        traditional power stations becomes increasingly
        eclipsed.

        As a result, the relative contribution of wind
        power to the guaranteed capacity of our supply
        system up to the year 2020 will fall continuously
        to around 4% (FIGURE 7).

        ***************************

      • Moderator, my comment has again been put into limbo, a state of non-existence where there is no comment such as “Your comment has been put into moderation” – it simply disappears..

        I am not sure why this happens – perhaps it is because of grammatical redundancy. I wrote something about “imbecilic politicians” fooling with energy systems – I accept that the adjective was unnecessary.

        Mea Culpa!

        Regards, Allan :-)

      • Basically, you need to retain sufficient conventional power plants to supply ALL demand, because the so-called “renewables” (excluding hydro) are simply not reliable.

        Not only that, but you saw recently what a powerful hurricane does to wind mill and solar power installations – they are utterly destroyed. When’s the last time a hurricane blew apart a coal, oil, gas or nuclear power station?! Enough said. Transmission lines will always be an issue in storms, but after a major storm, you won’t even have anything to reconnect your repaired transmission lines TO if you were depending on wind mills and solar panels. It’s another factor that should be (but isn’t) factored into their useful life and cost calculations – weather damage.

    • Storage requirements depend on the local climate in several ways: How big of a seasonal variation is there in demand, and is that anti-seasonal relative to renewables production. A cooler climate requiring winter heating when there is little solar production will require much more storage that a warmer climate where peak demand is for air conditioning. In any event, you will need to allow for periods of several days – perhaps weeks – of much lower than normal solar production for the time of year (plus any interseasonal storage requirements), and at least several weeks – perhaps months – for wind production (again plus any seasonal requirement).

      It is the seasonal requirement that is the real killer: it can often be ginormous, and way beyond any battery system – yet you only get one seasonal cycle per year to pay for it. Here’s an introduction to some scoping of the size of the problem:

      http://euanmearns.com/is-large-scale-energy-storage-dead/

  5. Not discussed is the madness of guaranteed price for renewables, regardless of supply or demand. This destabilizes the market and drives all other suppliers out of the market.

    Renewables should receive the same wholesale price as everyone else. And like everyone else this is based on you delivering what you contracted to deliver. Not any more or any less.
    Right now renewables get to deliver whatever they want, whenever they want and if you don’t want the power you have to pay extra for them to stop delivering.

  6. The solution of all this is not far away – molten salt nuclear reactors, which can function both as baseload and mid-load generators. They also are refueled while operating so there is no need for any refueling shutdowns. The cost is lower than any other type of generation – estimates for the various reactor designs range from less than $40US/$50AUD per mWhr to $50USD/$62.5AUD per mWhr. They can, if desired, burn Thorium, and Australia has lots of Thorium – the third largest deposits of this metal.

  7. Interesting how they seem to be using natural gas price forecasts at $8/GJ while it is currently $3/GJ and has been at this level since 2010.

      • Perhaps only for the eastern states David? I believe gas is cheaper in Western Australia where there is an abundance.

      • What kind of country charges more for natural gas than the going global rate (transport and local supply adjusted for if relevant) and more than the export price even.

        Only a ____ up country would do something this dumb especially when the Combined-cycle natural gas electricity plants are the most efficient plants ever and even reduce CO2 emissions (see the US).

      • “Bill Illis October 19, 2017 at 6:00 pm

        Only a ____ up country would do something this dumb…”

        Australia, well and truly ____ up thanks to the blithering idiots in Canberra. The green rot started in Tasmania with Bob Brown.

  8. Finally some common sense for ensuring base load coal and gas for electricity pricing rewards both for a 90 day reserve capacity in fuel supply and the ability to dispatch on demand. If USA economy was in a position similar to Australia and its nightmare electricity pricing, then the global economy would be at risk from a meltdown due to misplaced priorities in favouring renewables over traditional base load capacity. Australia is now the poster boy for how to run its electricity market into the ground. .50 cents a Kw/hr in SA? If the daft Gov’t there gets re-elected, then I guess they can afford to pay for that. Too bad the damage is done though.

    The USA also has plenty of opportunity to utilize nat gas from Canada, which has huge reserves, and no capacity to provide for its own LNG export now that all substantial international players have recently exited the British Columbia scene due to political risk. This creates a stranded asset for Canada that the USA is able to exploit, by purchasing large amounts of nat gas from Canada for its northern consumption while it is able to develop a very robust LNG export market mainly in the south gulf coast. This should assist in keeping a lid on gas prices, at least until either there is a drop in USA domestic shale gas production or LNG exports from USA increase dramatically such that domestic prices rise due to local competition demand for export and domestic usage.

  9. “The brief bottom line of the change is that eligible power sources will be able to participate in a details-to-be-determined rate structure that allows the owner to recover its “fully allocated costs” plus a “fair return on equity.””

    Unless I’m missing something, it seems to me it’s saying that coal can charge more to “recover its “fully allocated costs””

    Hence, it is not consistent with the statement:
    “If enacted, this resiliency plan would lead to lower electricity rates than would occur if nuclear and coal-fired plants continue to shut down.”

    Seems like one of those GOPer things, like claiming lowering tax rates will lower the deficit.

    • Try actually reading the post, particularly the part about the causes of Australia’s high electricity prices.

    • I am assuming you mean when Reagan lowered taxes and revenue to the government doubled? Its not the lowering of taxes its the increase growth in the economy that cause higher revenue to the government, plus with increased growth comes more hiring and less need for government programs, plus with increased growth you have increases in wages per capita as well and guess what that means, less need for government programs and more spending increasing growth even more.
      It’s not complicated, more government = less private sector, less private sector = less revenue for the government.

      • Actually, in the end Reagan was raising taxes, and more so during Bush I (read my lips). The biggest boom in the last 40 years was when Clinton was in office, and he did not lower taxes.

      • Mark, you are wrong on Clinton and taxes.
        Clinton did raise taxes in 1993 and the economy and stock market stumbled. But then he agreed to lower tax rates later and the economy boomed. He also agreed to welfare reform which induced millions to rejoin the labor force — that also helped the economy boomed. He also agreed to Roth IRAs which a tremendous tax cut. He also decreased the implicit tax rate of people on government programs when they start jobs. He also was an advocate for deregulation. He also agreed to keep growth in government spending modest. He was the greatest supply-side president that we have ever had!

      • Bob, it is not just economic growth that helps increase tax revenues. Lowering tax rates makes it more likely for individuals to characterize their income in tax-advantaged positions. Tax-advantaged positions mean less taxes, but they also mean less flexibility and increased cost of ownership. Lower tax rates on ordinary income render those tax-advantaged positions not worthwhile. For example a number of millionaires before 1980 paid zero in federal income tax. Why? Because the 70% tax rate induced them to put their assets in municipal bonds which are exempt from federal taxes. Reagan’s tax cut motivated these millionaire’s to reposition to assets which not only meant more tax revenue, but also spurred economic growth for the next 2 decades as assets were more efficiently allocated.

      • Really[not]Skeptical,
        That was still the result of the Reagan tax cuts. The economy has a lot of inertia, so changes in government policy can take a long time to have measurable effects, and it’s not always symmetrical. Notice that the boom ended during the second Clinton term. To be fair, that’s not all his fault; Bush certainly has his fair share of blame.

      • Reagan raised taxes because he had a deal with the Democrats. We got the taxes but the Democrats increased spending instead of decreasing them.
        As I said earlier, the deficit went up because spending went up more than revenues did.
        The economy was doing great when Clinton came into office, mostly because of the dot-com boom.
        After his tax increase, the economy slowed down.

    • “Seems like one of those GOPer things, like claiming lowering tax rates will lower the deficit.”

      Just the prospect of lower taxes has sent the Stock Market to record levels and has increased the value of the Stock Market by five TRILLION dollars. How’s your 401K doing?

      The Kennedy, Reagan and Bush 43 taxcuts all increased revenue to the U.S. Treasury.

      • I should add that the five TRILLION dollar increase in Stock Market value has happened *since* Trump got elected. We want to give credit where credit is due.

      • TA, I would add Clinton to your list of successful cuts in tax rates. Although Clinton did raise tax rates in 1993(and the economy and stock market stumbled), Clinton did say that increase in tax rates was a mistake. He then he agreed to lower tax rates later (a reduction of 10 percentage points!), and the economy boomed. He also agreed to welfare reform which induced millions to rejoin the labor force — that also helped the economy boomed. He also agreed to Roth IRAs which a tremendous tax cut. He also decreased the implicit tax rate of people on government programs when they start jobs. He also was an advocate for deregulation. He also agreed to keep growth in government spending modest. He was the greatest supply-side president that we have ever had!
        BTW. There is an important difference between reduction in tax rates and reduction in tax collections. The famous cuts in tax rates increased tax collections from the rich. It no longer was worth the loss of flexibility and costs of advisors to keep assets characterized in tax-advantaged positions.

      • “TA, I would add Clinton to your list of successful cuts in tax rates. Although Clinton did raise tax rates in 1993(and the economy and stock market stumbled), Clinton did say that increase in tax rates was a mistake. He then he agreed to lower tax rates later (a reduction of 10 percentage points!), and the economy boomed.”

        Yeah, Clinton raised taxes early in his term and then went and gave a speech shortly thereafter where he said it was a mistake.

        You should give Newt Gingrich a whole lot of credit for these tax cuts. I believe it was 1994 when the Republicans took control of the House of Representatives, with Newt as Speaker, after 40 straight years of Democrat control, and Clinton decided it was better to cooperate with Republicans than resist, which ended up making him look pretty good when the economy started booming as a result of the taxcuts. Ten-dollar-per-barrel oil didn’t hurt either. :)

    • ReallySkeptical, lower tax rates have repeatedly led to higher tax collections. and targeting specific tax rates will especially lower the deficit — if spending is controlled. Reagan and Bush lowered tax rates for all classes, but they still managed to increase tax collections. Bush not only lowered tax rates, but he abundantly gave money to families through child tax credits and such. Those moves made it less likely to increase tax revenues, but he still succeeded. In contrast, Clinton targeted the rich in his TAX CUTS, and the tax collections boomed.
      Lowering tax rates on lowering incomes might be the right thing to do, but they are not as likely to lower the deficit. BTW, in my experience, the rich start to not bother to avoid taxes when tax rates are in the 25% to 28% range. Higher than that, and they position their incomes into tax-advantaged characterizations.

  10. The interesting thing here is that estimating what gas v. coal prices will be ten or twenty or thirty years out, or what the costing on nuclear will be, all with different concerns as far as supply, capital cost of the generator, and the costs of financing the capital costs. All I can state is that there is long history of purported experts being quite wrong on all of these factors, all with great profundity and certainty.

  11. When I read this, my head wants to explode. What is happening here is that some plants may be kept open if they can justify as ‘peaker’ or ‘backing’ suppliers, and will essentially be subsidized, forthwith.
    Anyone who ever contemplated ‘business’ knows the concept of ‘OVERHEAD and BURDEN’ which are essentially fixed and variable cost of running a facility, SEPARATE from production costs.

    So… you take plants that may have supplied baseload in the past and keep them in reserve to make up for shortfalls of renewable, then compensate them for the additional operating costs per Kw/H supplied:
    BINGO Energy costs to the end user goes up.
    Free market it is not. Central planned energy control is what it is.

    • The best solution is to remove the requirement that power from renewable sources must be purchased when it is available.
      As long as that mandate is in place, you need ever more complicated regulatory structures to handle the distortions caused by it.

  12. My understanding is that U.S. freight trains are powered by electric motors that use electricity generated from diesel engines.

    If a train car were dedicated to battery storage, how far could a train travel on a fully charged train car battery? Trains could swap out depleted battery cars for fully charged ones periodically. Wind/Solar battery charging stations could be constructed to charge these train car batteries, rather than attempting to power the grid.

    Can Wind/Solar power U.S. freight trains? How long would it take to charge a train car battery? Could the Hybrid method of recharging during braking/coasting apply to freight trains as well?

    (Trying to find some meaningful application for wind/solar.)

    • Why not skip the battery on the train and just run some overhead wires for the electric supply? Europe and other parts of the world already do this.

      • That can be expensive. High-use and heavily-populated regions (like parts of northeast US) can do it, but beyond that it is likely cost-prohibitive.

      • They only do it in densely populated areas.
        Can you imagine how much it would cost to string such overhead lines from coast to coast?
        Not to mention the maintenance nightmare keeping those lines overhead and charged would be?
        How much would it cost the rail companies to have a train sitting out in the middle of the desert southwest for a day or two while a repair team replaces a blown transformer?

      • Naive to economics and practicality. The US generally isn’t Europe, Japan, heavily populated parts of Asia, etc.

      • A better solution for North America is a fuel cell that converted decane (diesel fuel) directly into electricity.

        Diesel-electric locomotives do have the ability to run the motors as generators to produce braking force, but the energy is dumped via resistor banks into tanks of water. Regenerative braking on a 14,000 ton freight train descending a slope at a constant speed is roughly 140 Mj per vertical meter drop. Going down a 2% grade at 35mph (~15 m/s) requires 42 Mw (56,000 BHP) just to keep from speeding up, so recovering all of the potential energy dissipated by braking would required energy storage capacity measured in 100 ton box cars.

    • Batteries vs. diesel is a very poor comparison. Batteries are off by an order of magnitude. What might the performance of a battery powered train look like?
      The best analog is the diesel-electric submarine. (Germany makes a very modern, quiet and lethal one.)
      In both the sub and the train, weight is not particularly a limiting factor. So both can be designed to hold large battery sets.
      The experience of American subs. in WWII is illustrative. As the war in the pacific progressed, American commanders realized that the sub was best used by adopting the tactics of a surface raider. On the surface they had great speed and mobility, and in many cases, simply outran pursuing Japanese destroyers, with speeds up to 24 kts. or better.
      Submerged, they could idle along at just 1-2 kts. for 12 hours before surfacing to recharge. At full submerged speed of 5-6 kts., batteries would deplete in just 45 minutes. In the words of one commander, submerged, they were little more than intelligent mine fields with extended range.
      There was a world of difference between surface and submerged operation.

      Captain: Surface the boat.
      (moments later)
      Exec: Engineering reports both engines started, recommends 60% power to propulsion, 40% to battery charge.
      Captain: Excellent.

      • >>
        There was a world of difference between surface and submerged operation.
        <<

        Another problem with WWII subs is that they were designed as surface ships. Of course they ran better on the surface than underwater. Modern subs are designed to function underwater.

        Jim

      • Jim Masterson: The first U.S. submarines (USS Holland, SS-1) were indeed designed to function underwater, with classic sausage-shaped hulls. But it was not long before the Navy discovered they had to operate more on the surface, due to the limitation on submerged operation. And thus, the hull shape was designed for favorable surface operation, even for the early nuclear submarines (Nautilus, Seawolf, Skate class, Triton). This did not (and could not) change without the use of nuclear propulsion, whereupon we adopted the USS Albacore (AGSS-569) hull form, once it had been proved by operational experience.

        Yes, the German invention of the snorkel permitted Diesel engine operation underwater, but it was a stealth expedient for limited use. Fleet operations necessitated open ocean operations, and surface operation was more efficient.

        Yes, we do have fully-submersible hull forms operating as Diesel-electrics, but these are developments of designs intended to operate in littoral waters, not open ocean.

      • Not to mention those deck guns which were standard fare for most subs from before WWI until after WWII. I bet they added some hydrodynamic drag to the equation.

        Jim

    • “How long would it take to charge a train car battery?”
      probably as long as to change out one car, assuming that’s the battery. Interesting idea.

      There also could be intermittent “hot tracks” that occasionally charge the battery and power the train. Best place to do this is on up hill approaches, when they really need the juice.

      • I really like the idea of “hot tracks” in rural areas. Wildlife uses railroad tracks very extensively to move around. One false move and ZAAAPP!. Your venison comes already barbecued. Probably keep the coyote population under control as well.
        Environmentalism strikes again!

      • Tony, you could probably rig up a way to only energize the tracks when a train is on them.
        RS, you still leave out the problem of getting the power to tracks in remote areas.
        Another issue with hot tracks is what happens to them when it rains?

      • The advantage of batteries over a ‘Hot Track’ solution is allowing the inconsistent nature of wind/solar power to charge batteries when power is being generated. A ‘hot track’ solution would require reliable power even on windless nights.

    • I see the Green Goat Hybrid Switchyard Locomotive went bankrupt recently.

      http://www.american-rails.com/gensets.html

      It was a normal sized head end locomotive that had its normal large diesel taken out and replaced with batteries and a smaller hybrid diesel engine charging the batteries when depleted. It was a good idea in principal, but the company just didn’t get the sales volume to stay afloat. Had some advantages in that it could be recharged for idling around the switch yard putting cars together for a train for a few hours stand alone and/or go into hybrid mode and work all day, and a lot quieter for residential areas. Was only used in switch yards…not on mainlines. I predict this concept will return when the batteries are cheaper and better.

    • “How long would it take to charge a train car battery?”

      All taken into account a great deal longer than it would take to put a few thousand gallons of diesel, I suspect.
      And a battery that big would be vastly more expensive than a diesel tank.

  13. Questions for our Aussie friends:

    Australian LNG landed in Japan is actually 40% cheaper than natural gas produced and sold in Australia.

    At first look, this seems impossible. So there must be a huge domestic tax on nat. gas sold in Aus. No wonder it is getting exported instead.
    Is this correct?

    Second:
    I read a somewhat oblique reference (on Jo Nova’s site) that Aus. has imposed a 300% (Yikes!) tax on coal. No wonder wind is said to now be competitive with coal.
    Is this correct?

    Thanks for any straight information you can provide.

    • LNG shipped to Japan was sold under long-term contracts. Natural gas in Australia is generally sold on the spot market or under short term contracts.

      Since May, the wholesale price of gas on the east coast of Australia overtook the price of gas in Japan. But because of long-term contracts signed by Santos, Shell and Origin Energy, the companies have been obliged to continue exporting to overseas markets, including Japan.

      https://www.theguardian.com/business/2016/aug/16/australian-gas-40-cheaper-japan-than-australia-despite-export-costs

      • Yes, but the eastern states never negotiated with the gas suppliers for a fixed percentage of gas to be reserved for domestic use at fixed prices, whereas Western Australia did this. So Western Australia now has the advantage of mainly coal power plant supplemented by gas units at a reasonable cost, except when the new state government decide to increase the tax on electricity.

      • See below: any competent gas trader could work their way around this if there were the necessary facilities to handle the gas. The problem is the lack of pipeline capacity to deliver to domestic markets rather than export facilities. That arose because Australians thought they didn’t need it, having all those renewables in the pipeline instead. So now they have to decide whether to build pipelines or LNG terminals that feed the previous pipeline systems in areas where production has declined.

    • It’s like this. To develop new gas fields and supply infrastructure the developers needed long term contracts to defray their investment risk (think of it like a hi-rise developer selling a majority of units off the plan to hold a minority to sell upon completion). Now Asian generator demand was typically much larger while the locals were stuck with the increasing impact of State subsidised/mandated renewables and so couldn’t commit to long term contracts in an environment of uncertainty. When overall demand and spot prices rose significantly with the push for gas to replace coal and back fickle renewables with gas peaking plants have a guess who’s laughing and who’s not now?

      It’s all very well Govt stepping in to muscle and use moral suasion on the gas producers to supply more gas to the local market but should they have to renege on their export contractual obligations that creates sovereign risk that Australia is not to be trusted more generally with knock on effects. The root cause of Australia’s dilemma here was the domestic push for fickle renewables in the first place but naturally the Green warmenistas will go into denial about that and claim the gas field developers/capitalism/big biz/yada, yada are screwing the locals and the usual xenophobic nonsense with ‘our gas’. Bottom line is the gas is no use to anybody in the ground.

      • No it’s not crazy- https://www.theguardian.com/australia-news/2017/aug/10/its-absurd-new-gas-import-terminal-for-one-of-worlds-biggest-gas-exporters
        Bottom line is Australians can have all the gas they want at current world prices if they lacked the foresight to lock in long term contracts to develop their own gas fields, ostensibly because they were stupid enough to bankrupt coal plants with fickle renewables. We can have all the gas we want if we’re prepared to pay the current world price, just like any other country that hasn’t locked in long term contracts.

      • observa:

        It’s not a matter of price – the price differential is more than there, and it arises because there is limited domestic pipeline capacity that can supply domestic markets. It’s a question of not having physical facilities, which were not invested in precisely because of all the green nonsense that prsumed they wouldn’t be needed. The silly thing is that had they built the pipelines there would be a supply of gas at US style prices, tied to the FOB value of gas exported to Japan. Gas is expensive to ship, so freight is a substantial element of the cost of gas landed in Japan.

  14. Yeah let’s subsidise those coal fired powerplants! Haha. Oh the irony.

    Well, at least it’s a clear sign the days of fossil fuel are coming to an end. Cheers!

    Ben

    • Another troll objects to companies being compensated for the problems being caused by regulations that favor his renewable power sources.

    • Ben believes a fearless leader proudly announcing that accepting a new tender to outsource the fire department results in big savings to poor struggling taxpayers since it beats the current tender regime hands down. When it’s pointed out the fine print in the contract means there’ll be no firemen on duty at night or when the wind don’t blow or blows too hard Ben sticks his fingers in his ears and keeps harping on about the cheap price.

  15. I agree completely with this:
    “I do not support the Enron-conceived notion that electricity is just another tradable commodity with opportunities for fabulous rates of return in certain conditions.”
    Too much is stake when so much depends on reliable electricity.

    • Most power is sold under long term contracts. Just like most oil is sold under long term contracts.
      The spot market is for those situations when the managers best guess comes up less than perfect.

      • Only partially true. Spot market is used for unpredictable demand. As far as petroleum and NG being purchased on long term contracts, that is true, but the contracts are often indexed to either a spot rate or end of month average for the commodity being purchased.

      • The really big money and the better chance for mischief is in the spot market for electricity. Peak demand periods when people really need the power are a prime example of when treating electricity as a only a tradable commodity is not in the best interests of everyone who is not a trader.

      • roger, please suggest an alternative method for buying electricity when your existing contracts don’t cover current demand?

  16. “The Marcellus is huge… but it will eventually peak. As natural gas prices gradually creep up from $3/mcf to $5-8/mcf over the next ten years, existing coal and nuclear power plants will become very competitive with NGCC… But, only if those power plants are still existing.”

    A devastating insight. There is reason to believe that the fracking revolution won’t provide cheap natural gas for decades to come.
    https://www.nature.com/news/natural-gas-the-fracking-fallacy-1.16430

    The US will be in a very deep hole if coal and nuclear are no longer physically present as viable energy sources. So yes, smart move from DoE- EPA…

  17. Yep. We do have lots of natural gas. However, most of it is uneconomic below $5-8/mcf. Shale plays, particularly the Marcellus, have created an over-supply situation which drove gas prices down to $2/mcf nad has generally held them around $3/mcf for quite a while. That over-supply situation won’t last forever, particularly with as much gas-fired generation coming on over the next couple of years as the planned retirement of coal-fired plants between now and 2050…

    https://www.eia.gov/todayinenergy/detail.php?id=29732

    If we continue to allow nuclear and coal-fired plants to close at the current rate, we will be in the same shape as Australia within a few decades, or less.

    Existing coal-fired and nuclear power plants aren’t that expensive to operate. Keeping them running will be a trivial cost relative to the alternative.

  18. I agree with the intent of the Resiliency Pricing Rule. As long as the electrical utilities are forced to accept unreliable wind and solar inputs, the reliable electrical generators should be fairly compensated for their increased costs induced by grid stabilization inefficiencies.

  19. All of this discussion leaves out a critical counterpoint: ERCOT. Has as many people (roughly) as Australia, as much grid demand, as much wind and so on. Yet it is on the cheaper side of electricity prices in the US. that even though it is currently paying off a massive transmission project. The grid also provided a fantastic rebuild after Irene.
    If it was the case that renewables always led to price increases then you would have a point. Yet there you have that shining Lone Star providing 57Twh of wind power in 2016, low prices, great reliability, and on track for 18% of all electricity this year.
    Never spend your time trying to prove the impossibility of something that has already been demonstrated. Instead we should ask why Germans and Aussies are incapable of copying the example of Texas.

    • Texas has a world class wind resource. And the transmission lines from West Texas were largely paid for by oil & gas revenue. Wind works pretty well here, particularly in spring and fall.

      • “World-class wind resource” Just like the North American Eastern grid (which touches the great plains) and the North American Western grid (which hits Wyoming) without even including the offshore opportunities in both. CREZ is being paid for by ratepayers (i.e. people who use electricity). If you want to say that the ratepayers are disproportionately employed by Oil and Gas then fine. But the the actual bill is being paid for by a charge on every person connected to the grid in Texas.

      • A major leap forward for Texas’ wind industry came in 2005 when Governor Perry and the state legislature approved the $7 billion Competitive Renewable Energy Zone initiative, a 3,600-mile network of transmission
        lines. The project made it possible to move the electricity from the wind farms in West Texas and the panhandle to the bigger markets, including the population centers along the Interstate-35 corridor, such as Dallas/Fort Worth and San Antonio. The timing was serendipitous, with the state Public Utility Commission approving the transmission lines a year before the global financial crisis hit in 2007 and 2008, according to Carey King, assistant director of the Energy Institute at the University of Texas at Austin.

        https://e360.yale.edu/features/how_conservative_texas_took_the_lead_in_us_wind_power

        While ratepayers will eventually foot most of the $7 billion for CREZ, the construction funding was made possible because of Texas’ State tax revenue. Texas generates $2 to $6 billion per year in oil & gas tax revenue. This makes it possible for the State to fund key infrastructure projects.

  20. Also, I can’t think of the last “extreme weather condition or natural or manmade disaster” that required a 90 day fuel supply. Frankly if you can’t get a natural gas pipeline repaired in 90 days chances are we are being occupied by a foreign military and a 90 day stockpile of coal isn’t going to help.

    • California’s Aliso Canyon natural gas storage facility was disrupted for more than 100 days. Pipeline failures aren’t the only sources of disruptions.

      • And would you say that the Aliso Canyon failure demonstrated that without coal fired plants the western grid could not cope with a disruption in Nat Gas storage? Or would you say that our engineers are freaking awesome and managed to work through that problem without coal fired backup?

      • I was just pointing out that pipeline failures aren’t the only way natural gas supplies can be disrupted.

  21. I’m not sure many coal plants would qualify for the 90-day supply rule. Most of the plants on the system I worked for had gone to the “on-time deliverables” mode & vastly reduced their coal-pile inventory.

  22. A rule that enables existing nuclear power plants to stay online definitely makes sense. Nuclear power plants are expensive to build (higher capital cost) but relatively cheap to operate, so that keeping existing nuclear power plants operating will tend to reduce overall electricity costs, as well as reducing pollutant emissions.

    The USA over-reacted to the minor hiccup at Three Mile Island, hyped by the movie “The China Syndrome” that came out about the same time, starring Hanoi Jane Fonda, so that very few nuclear power plants were built since the mid-1980’s. There was also a reaction to the more-serious Chernobyl incident, where most Americans were unaware that American nuclear power plants are far safer than those built in the Soviet Union with little or no safety regulations.

    In the scatterplot of electrical costs as a function of renewable capacity, it should be noted that France has about the same renewable capacity per capita as the USA, and much lower electricity costs than the other large countries of Europe (Germany, Italy, Spain, UK). France has very little coal or natural gas reserves, but has invested heavily in nuclear power plants, which provide between 75 and 80% of the country’s electric power needs (the rest comes mostly from hydro-electric in the mountainous areas of France).

    The USA has far more coal and natural gas reserves than France on a per-capita basis, but we could follow France’s example by continuing to run existing nuclear power plants, and possibly building new ones for when the cheap natural gas starts to run out.

  23. That is great news. Eco-fascists in the northeast US were salivating at the prospect of the coal-fired plant in Bow, NH being closed or possibly converted to NG and/or oil, along with another plant in Portsmouth. This is doubly dumb because in 2009, a $422 million scrubber was built for the Bow plant, money which has to be recouped by ratepayers.

  24. a details-to-be-determined rate structure that allows the owner to recover its “fully allocated costs” plus a “fair return on equity.”

    I’m all for keeping nuclear and clean coal generators running. But the above is a licence to steal. How? I’m going to spend 10 million dollars building a 1 million dollar plant and collect my fair return on equity. Why 10 million instead of 1 million? Because it is borrowed money so does not matter, it’s not out of my pockets . And I am going to give all the way overpriced construction and maintence contracts to my fellow cronies. Who will repay the favors in other ways.

    This is exactly what is happening in Canada with the electricity transmission lines. Talk about the rich keeping the rich rich. On the backs of the people who have to pay.

  25. Excerpted from above published commentary:

    Unlike the US, Australia doesn’t produce enough natural gas to export large volumes of LNG without driving up domestic prices. Australian LNG landed in Japan is actually 40% cheaper than natural gas produced and sold in Australia.

    HA, …….. “Different strokes for different folks”, …… to wit:

    Unlike Australia, the US produces enough prescription drugs to export large volumes of prescription drugs thus driving up domestic prices. US prescription drugs exported to Canada are actually 50+% cheaper than the same prescription drugs produced and sold in US of A.

  26. This is an excellent proposal which finally exposes and addresses the costly and unfair “must take” provisions mandated in energy markets for renewable energy which drive up costs of generation which provide critical reliability and stability requirements necessary for dependable and cost effective electric systems operation.

    These “must take” provisions for renewables have grossly distorted electric energy market pricing by undervaluing dispatchable generation, unfairly driving up unit costs of production for dispatchable generation and over valuing renewables based on politics devoid of real energy market value contributions.

    More about these decades old energy market pricing distortions of renewables can be found here https://wattsupwiththat.com/2017/06/21/renewable-energy-cost-and-reliability-claims-exposed-and-debunked/

  27. This is government doing what it should be doing.
    Taking sound technical advice and acting to protect the long term interests of citizens and the economy, rather than playing politics with the future of a country and it’s population.
    Watermelons should look and learn.

  28. Posting again – third time lucky? Or have I been banished into the outer darkness?

    Here in Alberta the cost of generating natural gas-fired or coal-fired power is about 2-4cents/KWh.

    Then this cost ~QUADRUPLES due to the way our $%^&* politicians have mismanaged the costs of Transmission, Distribution and Administration. Costs also increase due to the addition of unreliable, non-dispatchable wind power into the grid.

    Alberta recently added a new $2 billion DC transmission line that actually has higher (AC-DC-AC Conversion + Line) losses than the old AC system, because the AC-DC-AC conversion losses are about 5%, much higher than the total line losses of the old AC lines (which obviously required no AC-DC-AC conversion).

    Then they had to take power off the old AC lines and put it on the new DC line – otherwise the new DC line would have run at less than 10% of capacity.

    The math IS that simple, but clearly too much for our Alberta politicians.

    Warren Buffet owns the new DC line and gets a guaranteed utility rate-of-return from this nonsense.

    Preliminary Scoping and Engineering was apparently done by Phoebe Buffet.

  29. Nuclear isn’t all that resilient. Most cannot operate without outside power. As I recall, when the big blackout affected the northeast in 2003, nuclear plants were among the last to come back. I would reserve this for plants that can run on their own with stockpiled fuel and no outside power, and in the case of a nuclear plan they need their own backup generators.

    • John
      If nuclear electricity was produced in small distributed reactors like those that the USA built for the NR1 nuclear miniaturized submarine in the 1960’s, those or similar units could boost power grids for strategic operation. It seems strange that the United States built and operationally used small nuclear power plants at that time, but now the world waits while China develops the concept for mobile and town size electricity generation plants. Read the excellent book Dark Waters written by Lee Vyborny and Don Davis published by Random House Company UK – a good read too

  30. Of course, those claimed Oz coal prices are on the basis of clean sheet, greenfield construction of a new electricity industry.

    The marginal cost of coal power from an existing plant, with existing grid, next to an already stripped coal seam with more coal than needed for the life of the plant, is for all practical purposes zero. They only shut them because of the Renewable Energy Certificate impost.

    The people who tell us that wind is cheaper on their preferred measurement basis are saying “Toyota has a special today – let’s dynamic our Ford.”

    • Governments aren’t “running our energy production.” However, public utilities that distribute and deliver our electricity are generally heavily regulated, even in States which deregulated electric utilities.

  31. ABC Australia are talking through their hats on the issue of gas. Australia’s gas production in 2106 was 91.2bcm, while their consumption was 41.1bcm – hardly a shortage. They claim that LNG landed CIF Japan was selling for less than gas staying behind in Australia. There’s a very easy deal to do for the Japanese and an astute gas trader: buy the gas back off the Japanese and sell it to the Australian domestic market, saving the cost of LNG manufacture and shipping. The Japanese can buy in replacement gas for much the same CIF price from other sources, and everyone is better off.

    So why doesn’t this happen? Partly because South Australia to relies on gas produced locally in the Gippsland basin, which is now in decline – and it lacks pipeline capacity to import from the new producing areas. Perhaps they should simply invest in an LNG discharge terminal, and buy the gas they need from the Japanese. It’s the lack of local distribution potential that is the problem.

  32. “has a 90-day fuel supply on site enabling it to operate during an emergency, extreme weather conditions, or a natural or man-made disaster;”

    Hello, coal!

    The coal seams provide so much more than reliable energy for homes and manufacturing and in an emergency. The coke is necessary for cement, and coal tar provides many useful items. The incredible machinery used for domestic production of coal allows prices to stay lower across the entire ecomomy, from lumber to sheet rock to nylon to agriculture. We need more massive diggers than ever. This is no time to lose the machinery at firesale prices to foreigners who will use them.

    Perhaps we could offer to mine the massive coal seams under the coastal shelf of the UK.

    Finally, to the worthless wind turbines and panels isn’t it about time we said, “Get your own damcement.”

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