Some analysts believe a months-long push to support older coal-fired and nuclear plants could soon come to fruition, as President Donald Trump urges federal officials who have been exploring legal authorities typically reserved for emergencies to make an announcement.
Trump ordered the U.S. Department of Energy to prepare steps to stop the loss of coal and nuclear power plants, and the agency has examined use of two federal laws to do so. While the administration's previous attempts to subsidize older coal and nuclear plants have failed, market observers say Trump's increased engagement in the issue, coupled with indications DOE is willing to go around entities that traditionally manage electricity markets, may indicate support is coming soon.
The market reaction to reports that DOE is considering ordering plant operators to buy electricity from certain power facilities for two years appears to have been interpreted as "more of the same," but this is the first time the DOE has contemplated unilateral action on the matter instead of working through the "reluctant and duty bound" Federal Energy Regulatory Commission, wrote Katie Bays, lead energy analyst with Height Securities LLC, in June 4 commentary. Bays predicted there will be more meaningful action announced in a matter of days "in the form of an emergency order."
"We are skeptical about the long-term legality of the subsidy plan, and details are still hazy about the scope and magnitude of the subsidies," Bays said. "However, it's increasingly clear that political will is behind the subsidy program, legal footing notwithstanding."
Trump, who according to The Washington Post recently told Energy Secretary Rick Perry that he would "love" to make an announcement helping "clean coal, nuclear" generation, has been relatively "hands-off" on previous attempts to boost coal and nuclear plants, wrote Morningstar analyst Dan Grunwald. But that could soon change if the DOE tries to use emergency powers to circumvent FERC, which has pushed back against DOE's efforts to compensate "fuel-secure" plants.
In an interview, Grunwald said the new DOE memo did a "decent job" of noting issues with resiliency and cybersecurity on today's power grid but failed to propose the sort of solutions that would do anything for grid security but prop up coal-fired and nuclear generation.
"I feel that it's pretty obvious it's politically motivated rather than analysis motivated," he said. Grunwald also wrote that while coal plant retirements might be delayed, they would inevitably continue regardless of administrative action.
Supporters of the initiative, and the DOE itself, frequently cite a report from the National Energy Technology Laboratory on grid resilience in the wake of a severe winter storm that struck the eastern U.S. in January. A March report from PJM Interconnection acknowledged the laboratory's finding that a fuel-secure generation fleet is important to serve future demand, but said it erroneously concluded that an increase in coal generation indicated the potential for generation shortfalls, when increased coal dispatch in that period was actually driven by relative economics.
PJM noted it has already taken steps to ensure fuel security and said the use of coal generation during that cold snap should not be extrapolated to make a "conclusion as to future reliability within PJM." In statements about the DOE's latest memo, the grid operator said there is no immediate threat to system reliability and a federal intervention in the market would be damaging to consumers.
Ashley Burke, the spokeswoman for the National Mining Association, said in a statement June 1 that "the rearview mirror" is not a valuable way to think about the risk power plant retirements might pose. Market-based solutions to address and value coal and nuclear plants on the grid would be the best path, said American Coalition for Clean Coal Electricity COO Michelle Bloodworth, but for now, the retirements must be paused to assess potential emergencies.
"We're studying things that we really haven't studied because we have a different generation mix," Bloodworth told S&P Global Market Intelligence. "We're really just talking about an interim period to make sure those coal, nuclear or even natural gas plants that would be fuel secure are not retired."
Bays wrote that legal challenges would likely follow any DOE actions to intervene in power markets, but in the interim, generators owned by FirstEnergy Corp., Exelon Corp., Public Service Enterprise Group Inc. and Vistra Energy Corp. could receive elevated payments for their assets. Meanwhile, companies like Calpine Corp. would likely see their efficient gas-generating units dispatch less, said Scott Solomon, vice president and senior credit officer with Moody's, in a recent note.
"My interpretation is it could just be switching the positions of assets, taking the bad ones and making them good and taking the good ones and making them the bad," Solomon said in a June 7 interview.
Other opponents of intervening in U.S. energy markets have also slammed the proposal and others like it as an unnecessary attempt to save uneconomic generation to the detriment of newer, competitive resources. "The power system has never been more reliable and no emergency exists," said Robert Gramlich, president of consultant firm Grid Strategies LLC, in June 7 testimony before a U.S. House subcommittee meeting about the future of the U.S. electricity grid.
Gramlich said about 99% of customer outage-hours are caused by distribution and transmission issues, not generation failures or fuel delivery problems, and fuel security issues have only contributed to one in every 1.4 million hours of customer electricity outages.
"The president and DOE are undertaking a misguided program to fund the continued operation of old, uneconomic and unreliable power plants," Gramlich told the subcommittee. "It will be important for Congress to rigorously oversee the Department of Energy, and the Office of Electricity specifically, to ensure that important work gets done and taxpayer dollars are not wasted on ill-conceived programs."
