Fourteen Alleged Magical Properties That Coal and Nuclear Plants Don’t Have and Shouldn’t Be Paid Extra for Providing
As the U.S. electricity sector awaits the release of a Department of Energy study assessing the impact of current market design on baseload generation and grid reliability, Rocky Mountain Institute’s Cofounder and Chief Scientist, Amory B. Lovins, has outlined and debunked in a soon-to-be-published Electricity Journal article 14 claimed rationales for mandating or subsidizing uncompetitive coal and nuclear plants. Below, a summary of his main findings shows that energy efficiency, grid flexibility, and modern renewables enhance, not reduce, grid reliability and do so at lower cost—a conclusion Amory and most other advanced practitioners have been documenting for many years.
The new federal administration faces an unusual dilemma in forming a coherent electricity strategy. Its secretary of energy has said that uncompetitive coal and nuclear power plants must be kept running for “national security,” even if doing so requires overruling state regulation and free-market practices. The secretary ordered a 60-day staff study to seek an analytic basis for his hypothesis, but finding credible support won’t be easy because virtually all prior expert studies, including those of the grid operators and the secretary’s own department, reached opposite, conclusive, consistent, and empirically validated conclusions.
Subsidizing distressed nuclear plants typically saves less carbon than closing them and reinvesting their saved operating cost into several-fold-cheaper efficiency. Carbon prices, not plant subsidies, best recognize decarbonizing attributes. Grid reliability needs careful integration of diverse, distributed demand-side and renewable resources, using competitive market processes and resilient architectures, but does not require “baseload” plants. All 14 current rationales for mandating or subsidizing uncompetitive coal and nuclear plants lack technical merit or would favor competitors instead. Here’s a summary of why:
- Subsidies that bail out uncompetitive nuclear power plants cost ratepayers and distort wholesale electricity markets. Thorough and independent analysis of subsidy streams would probably find that nuclear and fossil-fueled generators receive more subsidies than renewables. Indeed, the subsidies relevant to current power-market prices appear to be generally larger and more durable for fossil-fueled and nuclear plants than for modern renewables. New, long-term state subsidies to distressed nuclear plants already total around $10+ billion and threaten to go far higher. Nuclear operators’ insistence on locking in decade-plus subsidies harms market flexibility, innovation, and competition. It rejects and defeats the whole purpose of having wholesale power markets.
- Subsidies that bail out uncompetitive nuclear power plants cost the planet, too. Prolonging the operation of expensive, aging nuclear plants reduces and retards climate protection. Were these plants to retire, their high operating costs could be invested to buy several-fold larger carbon savings. For example, closing a nuclear unit in the top quartile of operating costs (>6¢/kWh) and respending those avoided operating costs on electric efficiency can indirectly save more CO2 than closing a coal-fired power plant. While exact values will depend on specific details, it’s possible to procure 2–3 kWh of efficiency for each nuclear kWh not generated, producing greater carbon savings at lower cost while also avoiding the cost of the unneeded nuclear subsidies. Closing both coal plants and distressed nuclear plants can save carbon and money, so both should be encouraged.
- Carbon and other pollution pricing would be a more efficient, equitable means of valuing zero-emission resources. Pricing carbon and other pollutants, instead of adding targeted subsidies, would properly recognize zero-emission resources’ societal benefits by tacking on an additional price tag to each kWh of fossil-fuel-generated electricity. While a sufficiently high carbon price would advantage nuclear against gas and coal, it would not distort nuclear power’s competition with renewables. If there were a price on carbon or other emissions, the price should be equal for all resources to create a level playing field. Such pricing should recognize all material externalities. And new nuclear subsidies to achieve the same purpose should not be added to some states’ carbon pricing.
- “Large-scale” power plants, far from being advantageous, are oversized and thus more prone to awkward failures than modular and distributed generators. Large-scale generation is not only unnecessary—a standard thousand-megawatt power plant provides roughly one thousand times the average electricity draw of a typical office building, 100 thousand times that of a home, and 100 million times that of a laptop computer—but is also more costly to back up and less resilient. While every type of electricity generator breaks from time to time, some fail more gracefully than others. Large, lumpy units, like coal and nuclear, make failures more consequential and require more elaborate and costly support—reserve margin, spinning reserve, and cycling costs—than a diversified, distributed portfolio of small, modular units, like modern renewables.
- “Baseload” generation, the traditional backbone of power supplies, is too inflexible to benefit the modern grid. Large, thermal, and relatively steady generation is no longer a necessary grid attribute. In fact, it often brings inflexibility that complicates grid management and inhibits grid integration, slowing the uptake of variable renewables (windpower and photovoltaics). Largely renewable supply, diversified by type and location, offers greater flexibility and reliability, as four EU countries with modest or no hydropower demonstrated in 2014 by meeting 46–64 percent of their electricity needs with modern renewables. In 2015, renewables—three-fourths of which were wind and solar PV—provided 49 percent of the ultrareliable former East German utility’s electricity, yet its last high-voltage outage was decades ago. All the services and attributes that big thermal power plants have traditionally provided can come as well or better from modern renewables and generally at lower cost.
- The costs of modern grid flexibility are disproportionately borne by renewables. The rich menu of grid flexibility resources makes dispatchability—a power plant’s ability to vary its output to match the grid’s rapidly changing needs—no longer a vital attribute. Maintaining reliability with a high share of variable renewables requires well-known improvements to operations, grids, and markets. To achieve reliable and flexible grid operation, developers of variable renewables generally bear their resources’ grid balancing costs, which are usually less than $5/MWh and nearly always less than $10/MWh. Yet coal and nuclear plants (at least outside Texas) are not charged for their own balancing costs, which emerging evidence suggests are probably much larger.
- Baseload plants’ load shape does not align with peak demand and their inflexibility does not provide as much value as renewables in modern grids. Coal and nuclear plants merit no special rewards for their relatively steady output shape—quite the contrary, as their inflexibility complicates grid integration. Solar PVs’ often-strong correlation with midday peak loads can be valuable, but big thermal plants’ relatively steady output is of no special value to modern grids, which require energy, capacity, flexibility, and ancillary services, rather than steady generation. The U.S. power grid was built so working power plants can back up failed ones. In the same way, but often at lower cost, it can back up the forecastable variations of wind and solar power with other renewables, of other kinds or in other places, delivering equal or often better reliability.
- Coal and nuclear plants’ “fuel on hand” reduces, not enhances, grid reliability. Coal and nuclear plants’ fuel on hand—on-site fuel supply that supposedly reduces dependence on fuel logistics—has not historically shielded them from widespread coincident failures arising on-site or in upstream infrastructure, and hence does not improve grid resilience. Rather, their large unit scale reduces resilience and increases backup costs. The notion that “fuel on hand” enhances grid resilience by reducing dependence on fuel logistics seems intuitively plausible. (Renewables need no fuel but aren’t mentioned in Secretary Perry’s memo.). However, both coal and gas delivery exhibit worrisome weaknesses that concern NERC, the grid-reliability regulator. Coal plants have proven vulnerable to fuel-logistics problems—rail and bridge failures, frozen barges and on-site coal piles, etc. Gas infrastructure suffers freezeups and the inherent physical and cyber vulnerabilities of pipeline systems. Nuclear plants are so hard to fix that over half the U.S. fleet has suffered shutdowns lasting a year or more (ten of them twice). And nuclear plants have suffered mass shutdowns caused by accidents, safety concerns, heat waves, and grid failures; indeed, a quirk of nuclear physics can leave them disabled many days after a blackout.
- Conventional generators face greater economic challenges at scale than do modern renewables, due to renewables’ rapidly falling costs. Resisting “value deflation” (which supposedly makes renewables “eat their own lunch” by reducing their value as more are added) has been greatly exaggerated by older studies that artificially constrain or exclude straightforward mitigations. Though featured in a major MIT study, price deflation has not withstood analysis—and identical modeling of nonrenewables, especially nuclear power, would affect them even worse than renewables.
- Market forces, not subsidies, are the primary driver behind coal and nuclear plants’ losses. Charging renewables for “imposing” coal and nuclear plants’ competitive losses is improper and contrary to accepted market principles whereby competitors win or lose. Yet the prior employer of the head of Secretary Perry’s new grid study claimed that revenues lost by incumbent thermal plants are an “imposed cost” of the renewables that outcompeted them. This novel theory would have had Netflix compensate cable-TV providers and Henry Ford horse-stable owners. Coal and nuclear operators were already compensated for all the risks of their investments and should not be paid twice.
- Appropriately pricing the risk of volatile fuel prices would tilt the economics further in renewables’ favor. Financial economics requires, but many buyers neglect, counting the market value of fuels’ price volatility. Doing so would properly recognize renewables’ and efficiency’s valuable fixed-price attribute and lower financial risk. A major distortion in wholesale power markets is their typical failure to risk-adjust different resources. Fairly comparing volatile-price resources, notably gas-fired power plants, with fixed-price resources, like efficiency and renewables, requires risk-equalization by adding to spot prices the market value of price volatility. For natural gas, this would about double the apparent gas price, revealing fracked gas as less “cheap” than claimed—but coal prices have lately proven volatile too, and that risk isn’t counted either.
- Renewables support more jobs than coal and nuclear plants. Coal and nuclear plants’ outlays for payrolls and taxes are reimbursed by customers (so they should not be paid yet again by special subsidies); are costs rather than benefits; should not be specially rewarded in power markets; and actually support fewer jobs per MWh than do equivalent efficiency and modern renewables. Impressively, Texas windpower, which grew rapidly under Secretary Perry’s prior leadership as governor, supports 25,000 jobs, produces 15 percent of electricity, and helped enable record-low 2016 wholesale electricity prices.
- Nuclear power does not materially support the U.S. nuclear weapons program (a supposed national-security benefit). Nuclear power’s claimed support for U.S. nuclear weapons programs seems illusory (and embarrassingly contradictory to the nuclear industry’s brand), but if it were real, should be paid for via defense budgets, not electric bills. Without nuclear-power jobs waiting after their Naval careers, Nuclear navy technicians may need more recruitment incentives, but that too is properly a defense cost.
- Renewables, not coal and nuclear plants, create a more diverse supply pool. Modern renewables and demand-side resources are rapidly diversifying U.S. electricity from vulnerability toward resilience. Retaining obsolete and less-resilient technologies for the sake of diversification would advance this goal in name but not in practical effect. As U.S. electricity supply rapidly diversifies away from incumbents’ coal and nuclear assets and toward insurgents’ gas and renewable assets plus efficient and timely use, the supply portfolio is getting more diverse, not less, and supply is becoming more reliable.
In summary, the electricity debate sparked by the 2017 change of federal administration is just starting. Perhaps RMI’s taxonomy of 14 novel virtues claimed for prolonging the operation of coal and nuclear plants, and claims that customers should pay more and competitive markets should give way to obtain those virtues, will help inform a discussion that needs clear thinking, rigorous logic, and sound evidence. The case for paying coal and nuclear plants more than wholesale power markets now do pay them is unsound.
These conclusions suggest that if the lively and worthwhile national debate Secretary Perry has launched is well-informed and transparent, its conclusions should support wider use and faster deployment, not of coal and nuclear energy, but of efficiency, flexible loads, and modern renewables. Elucidating the complex and important issues the secretary has raised should build understanding, advance the national interest, and enhance global prosperity and security. Experts who understand these issues have a special responsibility for promptly contributing to the debate.
 Many would argue that pricing externalities is a risky argument for nuclear advocates to make, because the societal cost of their technology’s safety, terrorism, waste, and perhaps other unpriced risks, though fiercely contested, could be very high. Japan offers a sobering example of costs that far exceeded plausible benefits.
 We adopt here this traditional description of baseload, but utilities actually use an economic definition: if you’re buying an electrical resource, baseload is the cheapest one in long-run levelized cost, or if you’ve bought it and are deciding which resource to operate next, baseload is the cheapest one to run (lowest short-run marginal cost). Big thermal power stations formerly met these criteria but no longer do.
Image courtesy of iStock.