Controversial Fuel-Secure Rule

Controversial Fuel-Secure Rule

Secretary Perry recently proposed a FERC (Federal Energy Regulatory Commission) rule that would help ensure grid reliability.

The rule would allow “recovery of costs of fuel-secure generation units.” A fuel-secure unit would be a power plant that has a 90 day supply of fuel on site.

The rule would benefit nuclear and coal-fired power plants.

There was an immediate outcry from the environmental left that has supported wind and solar in preference to all fossil fuel and nuclear power plants.

How electricity is dispatched by the various Regional Transmission and Independent System Operators (RTO/ISO) is typically an “insiders” discussion by technicians in the electric utility industry.

Although complicated, all Americas need to become acquainted with the subject as it affects the cost of electricity and whether the United States will be saddled with blackouts, such as those in South Australia last September.

Preferential dispatching is in addition to the other ways by which wind and solar are supported, e.g., subsidies, and Renewable Portfolio Standards (RPS) requiring utilities to provide an increasingly large percentage of electricity from wind and solar.

Dispatching Electricity

The rules for dispatching electricity favor wind and solar over coal-fired, natural gas and nuclear power plants.

In other words, wind and solar are dispatched ahead of, and in preference to, coal-fired, natural gas and nuclear power, because wind and solar have low variable costs due to their not having to pay for fuel.

This has resulted in the gradual, but inevitable, exclusion of electricity generated by coal-fired, natural gas, and nuclear power plants. See Importance of Duck Curve.

When coal-fired or nuclear power plants, which are designed to operate continuously, i.e., 24/7, are only able to sell a portion of the power they produce, it results in their early retirement before the end of their useful lives. This in turn, ultimately, causes higher electricity costs for all Americans.

Large Steam Turbine used in either a Coal-fired or Nuclear power plant.
These baseload plants require large investments and have high fixed costs.

 

RTO/ISO Comment

The PJM Interconnection LLC, an RTO/ISO, replied negatively to the DOE proposal:

“The DOE NOPR assumes without support that there is a resilience crisis that is urgently unfolding because coal and nuclear units are retiring, that market prices are to blame, and that the only solution is to incentivize those coal and nuclear units to remain in service by providing them with guaranteed cost of service rate recovery regardless of whether they are needed for resilience or actually provide measurable resilience benefits.”

PJM goes on to minimize the need for baseload power.

However, there is growing evidence that market prices are influencing the retirement of coal-fired and nuclear power plants, where such retirements contradict PJM’s assertions.

Importantly, PJM’s comments demonstrate there is a need for the public, not just utility insiders, to understand what is happening. The DOE proposal may not be the only alternative, but it is an alternative that raises the issue of preferential dispatching squarely and fairly.

Other Comments Opposing the Proposal

Power Magazine published an article titled, “Rick Perry’s Order to FERC Is Fraudulent” in an attempt to discredit the proposal. The magazine has supported the hypothesis of CO2 caused global warming and climate change and the use of wind and solar.

Amazingly, and disingenuously, the article said, “Plentiful natural gas storage is common in most regions of the U.S., save New England,” while neglecting to mention that the natural gas has to be transported by pipelines from storage to the natural gas power plant.

The article also failed to mention that homes get priority over power plants whenever natural gas is in short supply so that homes can continue to be heated.

While natural gas provides the least costly electricity, the plants are held captive by the need for pipelines to bring the natural gas to the power plant.

New England is most vulnerable to inadequate pipeline capacity.

But environmental groups are hard at work trying to block new pipelines that are critical to continued future supplies of natural gas to New England and other parts of the country.

While it appears as though the America Petroleum Institute (API) is objecting to the rule, because it may adversely affect the competitiveness of natural gas power plants in the short term, the API should embrace DOE’s proposal as natural gas power plants cannot compete with the low variable cost of wind and solar, especially when subsidies reduce wind and solar bids even further at RTO/ISO auctions.

API should note that California is already targeting a reduction in natural gas power plants, as detailed in its recently released CAISO publication, Electricity in 2030, Trends and Tasks for the Coming Years.

Obviously, as Puerto Rico has demonstrated, damage to transmission and distribution infrastructure can still result in power outages.

But power generation reliability is fundamental to the reliability of the grid.

Supporters of proposal

A few states, New Jersey, West Virginia and North Dakota for example, supported the proposal, as have some organizations such as the American Nuclear Society.

Conclusion

How electricity is dispatched, with its effect on reliability, is an important issue that should receive wide coverage because the current rules favor wind and solar at the expense of coal, nuclear and natural gas.

Continuing as we are will ultimately require a capital charge to compensate utilities for maintaining their coal-fired and nuclear power plants in operation … as well as their natural gas power plants.

Sooner or later, with increased use of wind and solar, it will be necessary for utilities to receive some form of capacity payment if the lights are to be kept on throughout the United States. Again, see Importance of Duck Curve.

Under the current rules, wind and solar will eventually be the last man standing.

Adoption of Secretary Perry’s proposal will help ensure the reliability of the grid.

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5 Replies to “Controversial Fuel-Secure Rule”

  1. Donn, I agree with you, as you probably know! People know very little about dispatch criteria and how renewable subsidies work. People do sometimes ask the question: “If the cost of power on the grid is going down, how come my electricity bill is going up?” This question arises because dispatch decisions and costs of power are basically hidden from the public eye.

    I also thought that API coming out against this rule was short-sighted.

    • Thanks for your comment. Yes, the average person doesn’t usually get involved in the details associated with dispatching electricity onto the grid, but it’s an important subject, and I’m hopeful that more articles such as this can make them aware of the problems associated with current dispatch rules.

  2. Pingback: Preferential/Political Dispatch: Rigging the Market Against Baseload Energy - Master Resource

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