The People of America's Oil and Natural Gas Indusry

The Cost to Bail Out Coal, Nuclear (Hint: It’s A Lot)

Jessica  Lutz

Jessica Lutz
Posted July 19, 2018

As it turns out, you can put a dollar figure on the cost to prop up failing coal and nuclear plants, and that figure could reach $35 billion a year — cost that could largely impact American consumers and/or taxpayers, for no discernible improvement to the nation's electric grid.

The Trump administration has used grid reliability, “resilience” and, more recently, national security as reasons for the government to bail out coal and nuclear plants – claims we’ve rebutted.  Now we can add ‘exorbitant potential cost to the American people’ to the list of reasons why propping up coal and nuclear is a bad idea.

API and a diverse group of organizations — Advanced Energy Economy, American Wind Energy Association, Electricity Consumers Resource Council, Electric Power Supply Association and Natural Gas Supply Association – have released a new Brattle study that estimates the potential direct cost of government intervention on behalf of coal and nuclear – again, a price tag that could reach $35 billion a year.

The study looked at a range of options to keep the national fleet of coal and nuclear plants operating –not counting the additional cost of actually generating electricity from those facilities – and estimates these direct costs:

  • $16.7 billion per year, or roughly $34 billion for two years as proposed, if every coal and nuclear plant in the country were given uniform support equal to the average financial shortfall experienced by such plants;
  • 9.7 billion to $17.2 billion annually, or roughly $20 billion to $34 billion over two years, if only those plants now facing shortfalls were given payments to cover their operating losses; or
  • $20 billion to $35 billion annually, or $40 billion to $70 billion total, if — as the administration proposed last year — power plant owners were also granted a return on their invested capital in addition to payments for operating shortfalls.

The report continues:

The magnitude and range of these estimates indicate the significant impact of yet-to-be determined policy design parameters and the uncertainty of the scope and impact of those choices on cost. These estimates also do not account for any distortionary effects on the operation of competitive wholesale markets, or the long-run implications of re-regulating a substantial portion of the generation fleet. Arresting the retirement of uneconomic generating assets in the current market environment will likely prove quite costly. [Emphasis added.]

It’s more than the stunning dollar amount. The report also finds that current and likely future wholesale market conditions will “continue to add pressure on some coal and nuclear plants to retire even if a financial support mechanism is put in place.” 

The implications of a bailout could be far-reaching. While the exact repercussions can’t be known until a formal policy is announced, we do know that – regardless of what form the policy takes – consumers will pay the price. Todd Snitchler, API Market Development Group Director:

“Today’s report shows that bailing out uneconomical coal and nuclear plants could conservatively cost $17.2 billion per year. Further, bailouts of coal and nuclear plants around the country could raise costs on American consumers and fundamentally hurt the administration’s goal of American energy dominance throughout the world. Affordable, reliable natural gas has earned its share of the electricity markets which is why it has become our nation’s top source of U.S. electricity. The natural gas and oil industry is committed to strengthening national security and is playing a leading role in reducing our decades long dependence on foreign energy but government mandates forcing consumers to buy coal and nuclear power does nothing advance the security of our nation’s electric grid.”

Today, the United States is the world’s leading producer of natural gas and oil and a leading natural gas exporter. U.S. exports of liquefied natural gas reached 25 countries in 2017. The national electricity grid is healthy and well-supplied from a fuel standpoint, with natural gas leading the way.

As we’ve said time and time again, there is no need for a bailout of failing coal and nuclear plants. This extraordinarily high cost to the American people is entirely unnecessary. But don’t take my word for it – I’ll leave you with some of what others are saying:

Malcolm Woolf, Advanced Energy Economy:
“Giving aging power plants that are not needed to keep the lights on $34 billion just to exist – that’s money for nothing. It’s too high a price to pay when advanced energy resources and competitive markets can provide the necessary services to keep our grid affordable, reliable, and secure. Independent assessments confirm that these power plants – most of which are decades old – are not needed to ensure reliability or security. We urge the Trump Administration to abandon, and Congress to resist, this exercise in crony capitalism, which comes at the expense of American businesses, families, and economy.”

Amy Farrell, American Wind Energy Association:
“This report sheds light on how costly the Administration’s coal and nuclear bailout could be. The $10 to $35 billion this policy would take from American taxpayers to keep failing businesses open each year for the next two years is just the down payment – this misguided bailout would also completely upend the competitive electricity markets that are delivering billions in consumer savings. That’s 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.”

John Hughes, Electricity Consumers Resources Council:
“This report clearly shows that proposals to prop up coal and nuclear resources will needlessly raise the cost of electricity and hamstring U.S. manufacturers to compete in increasingly competitive domestic and international markets. I fear, however, the impact is underestimated and that the actual impact on consumers will be worse.”

John E. Shelk, Electric Power Supply Association:
“The cost estimates in this report for the impact of potential federal payments to DOE’s preferred resources should be an eye opener and a wake-up call.  Cost matters, period. Cost matters legally because the Federal Power Act requires that only just and reasonable, non-discriminatory rates be charged for wholesale electricity. Cost also matters economically because it affects the broader economy. There is too much at stake for competitors and consumers alike not to strongly oppose the unprecedented market intervention that is being considered.”

Dena E. Wiggins, Natural Gas Supply Association:
“We hope that federal policymakers will reject this short-sighted measure to bail out old and economically failing power plants at a direct cost to consumers that could exceed $17 billion for every year it’s in place -- with no improvement to reliability. Policymakers should be even more deeply troubled by the longer-term consequences that went unquantified in the study, such as the harm the bailout would do to the competitive power markets that have brought economic and environmental benefits to all Americans. Policymakers should recognize that this is bad policy that hurts consumers, competition and choice and instead allow the competitive market to work.” 

ABOUT THE AUTHOR

Jessica Lutz is a writer for the American Petroleum Institute. Jessica joined API after 10+ years leading the in-house marketing and communications for non-profits and trade associations. A Michigan native, Jessica graduated from The University of Michigan with degrees in Communications and Political Science. She resides in Washington, D.C., and spends most of her free time trying to keep up with her energetic Giant Schnauzer, Jackson.