trending Market Intelligence /marketintelligence/en/news-insights/trending/ku_8sjqgpyx4hafiyd32eq2 content esgSubNav
In This List

Coal group still pushing for market relief after DOE grid rule rejection

Podcast

Next in Tech | Episode 49: Carbon reduction in cloud

Blog

Using ESG Analysis to Support a Sustainable Future

Research

US utility commissioners: Who they are and how they impact regulation

Blog

Q&A: Datacenters: Energy Hogs or Sustainability Helpers?


Coal group still pushing for market relief after DOE grid rule rejection

Despite federal regulators’ rejection of a U.S. Department of Energy proposal to prop up financially struggling coal-fired power plants, the head of the American Coalition for Clean Coal Electricity still hopes that grid operators will change wholesale market rules to keep even more of those plants from retiring prematurely.

In a Feb. 23 interview, ACCCE President and CEO Paul Bailey said the DOE was "directionally right" in asking the Federal Energy Regulatory Commission to value power plants based on their ability to store fuel on-site as part of a September 2017 notice of proposed rulemaking.

SNL Image

Paul Bailey, president and CEO of the American Coalition for Clean Coal Electricity.

Source: ACCCE

Although FERC denied the request, ACCCE hopes that grid operators and FERC will consider rewarding the beneficial attributes of the coal-fired fleet as they evaluate possible reforms to competitive markets.

"We think there's a market-based way to value fuel security as well as maybe other attributes of the coal fleet," Bailey said. "So we would like to see the wholesale markets develop ways to value those coal fleet attributes. You can say the same thing about nuclear, by the way."

Bailey suggested that grid operators hold an auction or develop other market mechanisms for compensating energy resources based on their "fuel security" characteristics. "It makes a lot of sense to value a 70- or 80-day supply of coal on-site versus mostly just-in-time [generation] ... and a lot of interruptible gas, [but] we're not bashing gas," Bailey said.

In its proposed resilience rule, the DOE asked FERC to ensure power plants with at least 90 days of fuel on-site could recover all their costs plus a return on investment. The proposal, which would mainly have benefited some coal and nuclear facilities, would have applied to plants in regions with wholesale energy and capacity markets that are not already subject to cost-of-service arrangements.

The DOE request was aimed at avoiding further retirements of coal-fired and nuclear power plants, many of which have closed in recent years amid rising competition from natural gas and renewable generation and slack power demand growth. The Trump administration has argued the retirements could imperil grid reliability and resilience.

But FERC found the DOE proposal lacked the evidentiary support needed to satisfy legal requirements. While the DOE maintained that grid resilience and reliability are suffering due to certain resources retiring prematurely, the commission found no proof that this is the case. Even if those retirements may be a threat, FERC said that does not mean the existing tariffs are unjust and unreasonable, a prerequisite to it adopting the proposed DOE rule. Critics of the DOE plan have also highlighted the low rate of power outages stemming from fuel supply issues, with most blackouts resulting from distribution system problems.

FERC is still considering ways to address possible resilience issues in wholesale markets, which could allow the coal industry another stab at market relief. The commission in early January asked grid operators to share their resilience concerns with the agency, including potential price formation issues that could be compromising needed assets.

"We hope the grid operators will say, 'Yes we think there are challenges to resilience and we need to figure out what to do to keep these retirements from occurring,'" Bailey said. "If, on the other hand, the grid operators say 'nothing to see here, just move along,' then we're going to have to develop a more aggressive strategy ourselves about this."

Bailey hopes that defining and measuring resilience more specifically will give coal the support that ACCCE and other industry proponents seek. "I don't see a lot of controversy about what resilience is ... [but] we don't have any criteria or metrics for resilience," he said.

The DOE is working on a grid resilience model that could help identify critical power system components and show interdependencies among different energy systems, including gas pipelines. Bailey said the model could be helpful but will take "quite some time." He also said the coal fleet could benefit from a resilience standard established by the North American Electric Reliability Corp., which is already looking at the effect of premature plant retirements on the bulk power system.

The push for market support comes amid a sharp decline in U.S. coal generation. Since 2010, about 69,000 MW of coal-fired generating capacity has retired or switched to burning other fuels, according to an ACCCE analysis done. By 2030, 111,000 MW of U.S. coal capacity is projected to shut down, representing 35% of the nation's fleet.

Tax proposal coming

In addition to new market rules, ACCCE is continuing to pursue possible tax credits or incentives for existing coal-fired plants.

In 2017, the group joined American Electric Power Co. Inc. in pitching an up to $26/kW credit for all coal plants that comply with Clean Air Act standards. Unlike the DOE proposal, which would apply to about 40,000 MW of coal capacity located in competitive markets, the tax credits would be available to nearly all the U.S. coal-fired fleet. Although the tax credits were not included in the GOP's massive tax bill enacted in late 2017, Bailey is optimistic that Congress will give the proposal another go.

"We think Congress will come back around and deal with taxes probably before the end of the year," Bailey said. "I would say, so far, people understand the need for tax credits."

Bailey said lawmakers may introduce a bill soon that includes the incentives, but he declined to discuss further details of the potential legislation.

Regulatory reform

The final piece of the puzzle to support at-risk coal plants is regulatory reform at the U.S. Environmental Protection Agency, Bailey said. ACCCE is one of the many stakeholders to file comments on the EPA's request for information on a replacement for the Clean Power Plan. Bailey said his group wants a replacement that is "sensible" and "legal," and like other industry stakeholders, ACCCE is calling for a rule that would only require measures that can be taken at the plant level.

ACCCE is also among the growing chorus of voices calling for reform to the EPA's new source review program, which sets the threshold under which power plant upgrade projects trigger more stringent emissions requirements. Bailey would like to see reforms to the effluent limitations guidelines, regional haze, Cross-State Air Pollution Rule, new source performance standards, and the coal combustion residuals rule. The EPA announced major revisions to the coal ash rule March. 1.

Bailey has also met with EPA's Office of Air and Radiation chief, Bill Wehrum, and other high-level agency officials, where the Mercury and Air Toxics Standards were discussed as a possible target for reforms. Power plants across the country have already complied with that rule, but the EPA has nevertheless embarked on a review of certain portions. Bailey was not sure exactly what changes Wehrum might seek but said his conversations with the EPA have focused on using co-benefits to justify a regulation and on whether the rule was appropriate and necessary under the Clean Air Act.