Report Projects DOE Coal, Nuclear Bailout Costs Could Top $34 Billion

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Above Photo: Cost estimates vary on the Trump administration’s plan to support coal plants. Shutterstock.com

A previous estimate, from a pro-coal group, put the cost at $4 billion.

Analysis out this week from The Brattle Group estimates the Trump administration’s coal and nuclear support plan could cost between $9.7 billion and $17.2 billion annually.

Working off of the scant details presented in a draft memorandum released by Bloomberg in May, The Brattle Group analyzed several scenarios the administration might employ to support nuclear and coal-fired power plants.

One assumes the government would pay an average $50-per-kilowatt flat rate to all plants, costing $16.7 billion a year. In another scenario, facilities experiencing shortfalls would be compensated directly at a customized level between $43 to $58 per kilowatt, costing between $9.7 billion and $17.2 billion each year. The draft memo suggested facilities would receive payments for two years, putting high-end cost estimates north of $34 billion for the duration of the program.

If the administration moves forward with a plan that pays facilities back for capital already invested in power plants, in addition to operating shortfalls, it bumps the price to $20 billion to $35 billion per year.

Brattle’s cost estimates dwarf the $4 billion calculated by the American Coalition for Clean Coal Electricity, presented in a report earlier this month. Groups that have opposed the potential policy, including Advanced Energy Economy, the American Wind Energy Association and the Natural Gas Supply Association, funded the Brattle report.

The widely varying price tags echo diverging opinions on the bailout policy.

In a statement on the Brattle analysis, Amy Farrell, senior vice president for government and public affairs at the American Wind Energy Association, called the costs “a steep price to pay in an era of U.S. energy abundance, when independent regulators and grid operators agree that orderly power plant retirements do not constitute an emergency.”

But in its paper, the coal group argued that “while $4 billion per year is not trivial, it is tiny compared to other investments for national security.”

While the debate over numbers continues, the administration has remained mostly quiet on its plan. Though President Trump and Energy Secretary Rick Perry have continued to stump for coal in public appearances, the Department of Energy has revealed little about specific plans to use the Federal Power Act and the Defense Production Act to support coal and nuclear in the name of national security.

Those unknowns led Brattle authors to make certain assumptions.

“Nothing is currently known about how DOE might define the [subject generation facility, or SGF] units or establish criteria for inclusion. This might include, for example, whether units have to announce a pending retirement; whether they have to demonstrate that they are losing money (or calculate how much they are losing); whether units can self-nominate; whether the list is a one-time designation or the number of SGFs could change over time,” the Brattle report notes. “All of these choices will affect the cost and efficacy of the program.”

Rick Perry’s previously proposed — and subsequently rejected — resilience plan would have included plants located in certain areas with regional transmission organizations (RTOs) or independent system operators (ISOs) and with 90 days of fuel onsite. The draft memo suggests that all plants could receive support.

The Brattle report includes 334.9 gigawatts of plants, including 235.8 gigawatts of coal-fired plants and 99.1 gigawatts of nuclear plants. Most, but not all, are located in RTO footprints.

 

Source: The Brattle Group

If the list of supported plants turns out not to be static, the Brattle authors describe a sort of domino effect whereby plants receiving payments could create a more challenging market for other plants, forcing them either to retire or be added to the list of plants requiring support.

But the authors suggest that a fixed list of participating plants may lead to retirements as well. Plants receiving payments may continue to operate while plants that did not make the original list — but which begin to lose money based on market forces — are forced to retire.

Avoiding those pitfalls could require universal inclusion of coal and nuclear generation, as suggested in Brattle’s $50-per-kilowatt flat payment scenario. But determining that payment could provide a windfall to plants currently surviving, while potentially not providing enough money to plants in the red. Though the average operating cost shortfall for plants sits between $43 and $58 per kilowatt, some plants are operating at a shortfall of more than $100 per kilowatt.

The authors note that the support may also put downward pressure on wholesale power prices, hurting other plants that can’t keep up with declining costs.

According to the report, these complications may entirely undercut the administration’s aims.

“Payments to selected SGFs that simply encourage different plants to retire would not be effective at preserving existing capacity levels,” the authors write.

The administration is expected to release its own cost estimates on the plan soon.