U.S. CHAMBER OF COMMERCE

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Energy Blog

US Chamber of Commerce Blog

Heath Knakmuhs Power lines near a coal power plant in Winfield, West Virginia.Power lines near a coal power plant in Winfield, West Virginia. Photo credit: Luke Sharrett/Bloomberg.

Imagine a place where your light switch doesn’t always work, your air conditioning isn’t always available, and you can’t always cook in your oven.  And, to add insult to injury, you are paying more for your electricity than you do today.

Unfortunately, America could be closer to that kind of place than many think if we fail to appreciate the diverse balance of electricity generation resources that keep our lights on, our economy humming, and people cool in the summer and warm in the winter. 

In addition to more frequent power outages, the erosion of our current electricity resource mix–which includes meaningful contributions from coal, natural gas, nuclear, and renewable resources–also threatens to take a bite out of your wallet. To quantify this loss, the Global Energy Institute partnered with other groups to perform a comprehensive analysis conducted by the respected global research firm IHS Markit. This report–Ensuring Resilient and Efficient Electricity Generation–sets forth the adverse employment and economic impacts that would occur if the nation lost the significant contributions made today by coal and nuclear generating technologies. 

In particular, today’s diverse mix of electricity resources saves us $114 billion per year in electricity costs.  As a result, the cost of electricity is 27 percent lower than it would be without today’s diverse mix.

Higher electricity prices would ripple throughout the economy, meaning we would have to pay more for the products we purchase, the food we consume, and the services we hire.  The new report shows that higher electricity prices resulting from the erosion of our current resource mix could lead to the loss of 1 million jobs, the loss of $158 billion to our economy, and the loss of up to $845 in disposable income for every American household per year.  These are losses worthy of our attention. 

While we may primarily envision significant storms like Hurricane Irma when we think of weather events and electricity, there are many other weather events that could affect our power supply such as cold snaps and heat waves. We saw one of these noteworthy events in 2014 when the polar vortex plunged many Midwest and East Coast population centers into a deep freeze.  Thankfully, power suppliers were able to keep the heat on and the electricity grid up and running, despite spikes in demand, precisely because they had a diverse mix of generation resources upon which to call for electricity.

However, that may not be the case in the future. In 2014, coal-fired and nuclear power plants were essential in keeping the grid powered.  Today, those two sources are at risk. 

Last month, the Department of Energy (DOE) released a study that analyzes the challenges facing the electric grid and some of the very resources that kept the lights on back in 2014.  The Staff Report to the Secretary on Electricity Markets and Reliability concluded that today’s electricity markets are failing to support many of the positive attributes of our nation’s diverse electricity portfolio.  The DOE report found that while power markets do a fair job of keeping costs low, various state and federal mandates, regulations and subsidies, along with independent market factors, are threatening to close down the very same nuclear plants and coal generation units that serve as the backbone of our reliable and resilient power supply.  This market failure leaves us vulnerable to future power outages and the economic damages previously discussed.

But, these losses are not inevitable.  We can avoid them by keeping the diverse mix of resources that we currently enjoy.  If power markets properly value the beneficial attributes of today’s electricity mix, including the unique resiliency provided by coal and nuclear generation resources, the markets will ensure that those attributes continue to be available.  Only then will the markets safeguard our people and our economy from the next polar vortex.      

Ensuring Resilient and Efficient Electricity Generation shows that even if a less diverse future energy mix succeeds in keeping the lights on most of the time, that electricity will cost all of us and the economy more, hurt jobs, and divert more of our hard-earned income toward energy bills.  We urge federal regulators and legislators to act to ensure that the positive attributes of all generation resources are properly accounted for, and valued, as power markets evolve.  If power markets account for the positive attributes of different generation resources, our most reliable and resilient sources, particularly those powered by coal and nuclear technologies, will continue to provide our cities and towns with dependable and affordable electricity.

Editor's note: This originally appeared on the Global Energy Institute's blog.

Heath Knakmuhs Power lines course through the hills east of San Francisco BayPower lines course through the hills east of San Francisco Bay

Earlier this year, the Secretary of Energy requested a report from the Department examining the nation’s electricity grid. After months of speculation, rampant rumors, leaked drafts, and grossly premature prognostications, the Department of Energy (DOE) this week released a report very much reflective of what the DOE does best: crunch data and numbers, analyze what they mean, and make apolitical policy recommendations based upon facts. Indeed, the Staff Report to the Secretary on Electricity Markets and Reliability (“Staff Report”) only surprises in the fact that within an increasingly divisive Washington, the report is … not divisive.

Instead, the 181-page Staff Report has been widely viewed as a reasonable analysis of the current state of our nation’s power grid, combined with an accurate recognition of the challenges facing the nation’s electricity system today and into the future. The DOE staff recognizes that while the mosaic of power markets and balancing authorities across the nation have provided affordable and reliable electricity to consumers and businesses alike for decades, changing circumstances and economics within these regions should prompt OR has prompted policymakers at both the state and federal levels to take a second look. Specifically, DOE’s report encourages a reevaluation of the market structures currently in place to determine whether they are functioning in a way to ensure that the affordability and reliability we currently enjoy will continue to be present in the years to come.

Importantly, the Staff Report recognizes electric generation attributes not currently factored into the functioning of most centrally administered (by an RTO or ISO) and vertically integrated (state regulated) markets. Specifically, today’s power markets do not value resiliency, which is essentially the ability of the power grid to bounce back from a rare, but not unprecedented, event. For example, the polar vortex that hit the eastern United States in 2014 stressed the power grid in atypical fashion, with system operators relying upon a deep bench of traditional generation assets to keep the lights on and homes heated. Since that event, 5,573 MW of coal-fired capacity that provided resiliency to the abnormal conditions precipitated by that unusual weather event have been shuttered. While the DOE report finds that we have adequate reliability today, it is less clear whether the grid would have the resilience to again weather a polar vortex reprise.

The Staff Report recognizes that the jobs, tax, and general economic benefits associated with today’s diverse set of resources provide currently unrecognized value as well – especially in those cities and towns where large but threatened electricity generation plants reside. There are many generation attributes that today may not be taken into account when dispatching and compensating the different resources that contribute to our diverse electricity mix. These include energy security, the national security aspects of maintaining a leadership role in the nuclear energy sector, and even state-level goals to achieve a certain emissions profiles. But given that different resources provide different types and levels of attributes, the most efficient and resilient – rather than simply the most diverse – resource mix is what we should seek to maintain.

Surprising nobody, except maybe the premature critics of the report, the Staff Report finds that the shale revolution, and the abundant and affordable natural gas supplies it is providing the country, has imposed competitive pressure on the economic viability of coal-fired and nuclear power generation facilities. This revolution has provided countless jobs, was a primary contributor toward lifting the nation out of the Great Recession, and continues to spur needed economic development. However, continued activist opposition to the construction of new energy infrastructure threatens to rein-in the potential for natural gas to be an endless, rather than merely plentiful, resource to power America’s electric grid.

Importantly, and as we have previously said, the Staff Report recognizes that environmental regulations have taken a significant toll on the retention of the power plants that have for decades been the backbone of the country’s electricity grid. While some of the coal-plant retirements identified by the DOE could be attributed to factors such as age, the report finds that the timing of many of the retirements points clearly toward regulatory burdens. Along these lines, the report recommends that the Environmental Protection Agency regulations that presently discourage the upgrade of fossil-fueled power plants be revisited and revised to facilitate efficiency and reliability improvements.

The above challenges, combined with depressed electricity demand and the operational challenges imposed by increasing levels of variable resources such as wind and solar, have all contributed to the Staff Report’s call for “a comprehensive strategy for long-term reliability and resilience.” We could not agree more. Often times you fail to appreciate what you have until it is gone. Such could be the case with our power grid, and when it comes to billion-dollar assets, retirement decisions are not easily reversed. The costs to our nation could simply be too great to not refocus on the issues of reliability and grid resilience before it is too late.

Speaking of costs, one of the only things that the Staff Report does not tackle is to quantify the impact that the stresses on the nation’s electricity portfolio are likely to have on electricity prices, employment, and the overall economy. Fortuitously for both stakeholders and policymakers alike, this work is well underway. The well-respected global information and analytics firm IHS Markit is now wrapping up its analysis, and we here at the Global Energy Institute are proud to be a part of this effort. Stay tuned until next month, when this new report will expose the real-world economic implications of today’s challenged power mix.

[This was originally published on the Global Energy Institute's website]

Sean Hackbarth Natural Gas Fracking near Farmington, NM, in an area that is plentiful with natural gas. Fracking is a common practice in this area.Fracking depot near Farmington, NM, in an area that is plentiful with natural gas. We continue to produce a lot of natural gas from the shale boom. The Energy Department estimates that nearly 60 billion cubic feet a day will be produced in August.    So much natural gas is coming out of the ground that in three of the first five months of 2017, the United States has been a net exporter. As a result, natural gas exports are going through the roof, Nikkei reports:   The U.S. exported 197.6 billion cu. feet of liquefied natural gas from January through April, exceeding the total for all of last year, as American influence in the international market grew.   April's exports alone quintupled on the year to 50.6 billion cu. feet, according to data released at the end of June by the Energy Information Administration. Latin America and the Caribbean account for 44% of exports, and Asia for 28%, said Executive Vice President Anatol Feygin of Cheniere Energy, the sole company constructing and operating LNG export terminals in the lower 48 states.   The U.S. now exports its LNG to 23 countries. Poland began imports in June, and Japan's Chubu Electric Power imported the first American LNG derived from shale gas in January.  Mexico has also become a big customer of American natural gas:   "Pipeline imports of U.S. natural gas make up nearly 60 percent of total Mexican natural gas supply, compared to just 22 percent in 2010," according to the report's executive summary reviewed ahead of publication by the Washington Examiner. And that trend isn't about to change any time soon. "Platts Analytics expects that U.S. natural gas imports will rise to nearly 70 percent of total supply by 2022."   To meet the demand for natural gas from the U.S., Mexican pipeline import capacity has risen by 145 percent in the last seven years, according to the report. Mexican officials in the U.S. recently pointed out that the increase in natural gas use is driven partly by environmental targets that demand it switch to cleaner-burning natural gas to meet its electricity demand. Expect demand to continue rising as Mexico’s natural gas markets get more sophisticated.   This fact is an important wrinkle to NAFTA negotiations. Not only do supply chains tie North America together economically, but energy is also binding us closer. Canadian oil shale is imported to U.S. refineries (the Keystone XL pipeline would be a helpful addition), and U.S. natural gas is becoming a big component to Mexico’s growing energy appetite.   on Twitter

Liquefied natural gas (#LNG) exports from the #SabinePass in #Louisiana set a new record of 1.96 Bcf/d in May 2017. https://t.co/MbkiU6iuWl pic.twitter.com/vaOASn2Ksu

— EIA (@EIAgov) August 14, 2017

  We need enough energy infrastructure to maintain momentum that supports jobs and economic growth from the natural gas boom. More pipelines need to be approved and built to move natural gas from where it’s produced to consumers either domestically or internationally. We also need to speed up approvals of liquefied natural gas (LNG) facilities so we can sell more energy to hungry markets.   Now that there are enough commissioners on the Federal Energy Regulatory Commission, it can work through their energy infrastructure backlog. A least $50 billion in projects await FERC review.   With enough energy infrastructure in place, American energy can get to market, supporting good-paying jobs and economic growth.