October 24, 2017 Read More →

Coal Subsidies Defile Conservatism

Bloomberg News:

Energy Secretary Rick Perry’s proposal for “reforming” power markets is, in a word, nuts. One thing it isn’t, in a word, is conservative.

Monday marks the deadline for initial public comments on Perry’s plan. It would subsidize unregulated power plants holding 90 days worth of fuel onsite, effectively shielding those that use either coal or uranium from the market.

The ostensible objective is to reward these plants for “resilience,” an attribute that apparently isn’t rewarded under the current market structure. That’s the name for the role they play in preventing blackouts in extreme situations.

There’s nothing inherently wrong with adjusting markets to reward unsung services. As Perry told a congressional committee earlier this month, the U.S. power market is replete with subsidies and regulated prices.

What is inherently wrong is Perry’s cherry-picking of which special cases get recognized and his method of dealing with them.

There is no agreed-upon definition of what “resilience” means. But let’s remember that the U.S. power grid is one of the largest, most complex machines ever built, balancing electricity supply and demand in real time across millions of nodes. So the idea that keeping it running smoothly involves having large piles of coal and uranium sitting around just seems a bit simplistic.

Feel free not to take my word for it. In a recent report, the Rhodium Group consulting firm found that in major electricity disruptions that occurred between 2012 and 2016, the share attributed to fuel-supply issues was precisely 0.00007 percent.

Singling out coal piles for special treatment looks less like a sophisticated resilience plan and more like … special treatment.

PJM Interconnection, which manages the power market in the affected areas, has its own proposals for strengthening resiliency, including existing mechanisms like regular capacity auctions that reward plants for being ready to provide power if needed. These aren’t perfect, but they are at least market-based.

Perry’s preference to instead simply roll back a couple of decades of deregulation is the opposite of a traditional conservative approach — and is all the more remarkable when you consider it’s the antithesis of the way the power market works in his home state, Texas.

More: Subsidizing Coal Is Far From Conservative

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