Hurricane winds and raging wildfires have knocked out power to millions of people from Florida to California this year, underscoring the need to protect America's electric grid from disaster.
President Donald Trump's administration has a plan to achieve what it calls "resiliency": keep money-losing coal and nuclear plants running. The only problem is that almost every other corner of the energy industry -- including the $700 billion utility sector -- is heading in another direction.
Even as the White House pushes a proposal to prop up coal and nuclear, the nation's utilities are devoting almost half of their record $123 billion in spending this year to power lines and poles. Government data show the lights go out because of grid disruptions, not a lack of generation. Puerto Rico, where power was completely wiped out for days after Hurricane Maria slammed ashore in September, is looking to rooftop solar and batteries. Even the U.S. military is turning to on-site renewables.
The country's largest power market, stretching across much of the eastern half of the U.S., has a glut of power supplies so large that Moody's Investors Service has warned that generators will have to close down. Spending utility customers' money -- as much as $11.2 billion, according to The Brattle Group -- to keep more coal and nuclear online could exacerbate that overbuild, extending what's already been a three-year slump in electricity prices.
"If you end up 'fixing the market' in a not market-friendly way, you might just end up making it dysfunctional and you end up reducing investor confidence," said Toby Shea, a New-York based credit analyst at Moody's. "There's no right or wrong, but it's obvious it's going to make the downturn worse. That's not debatable."
In September, Energy Secretary Rick Perry directed the Federal Energy Regulatory Commission, which oversees the nation's grid, to come up with a rule that would allow generators with 90 days of fuel supply on-site to recover costs plus earn "a fair rate of return." Such plants are facing premature shutdowns and are indispensable to economic and national security, Perry said in a letter to the agency. The Federal Energy Regulatory Commission will decide on the proposal on Monday.
Independent estimates for the cost of the Energy Department's proposed policy range into the billions of dollars a year. An October study by Energy Innovation: Policy and Technology LLC forecast the range at $311 million to $10.6 billion, depending on details of how the policy is adopted. The Brattle Group predicted the cost at $3.7 billion to $11.2 billion a year.
Utilities including American Electric Power Co. and Duke Energy Corp. are focused on power lines, rather than fuel supply. One major lesson from recent disasters is that damage to lines and related infrastructure is the primary cause of power failures.
"Major blackouts nearly all start in the long, vulnerable transmission lines that coal and nuclear plants require," said Amory Lovins, co-founder and chief scientist of the Rocky Mountain Institute, a nonprofit focused on sustainability.
In a testament to the solar, wind and other sources shift, American Electric Power said it will spend $4.5 billion to buy the country's largest wind farm, which is under construction, and build a 350-mile transmission line to serve customers in Arkansas, Louisiana, Oklahoma and Texas. Those customers will see their utility rates go down when that power starts flowing, said Lisa Barton, president and chief operating officer of the company's transmission operations.
The nation's military is also moving toward clean energy. The Defense Department -- one of the world's largest energy consumers -- had about 1,390 renewable-energy projects operating in 2015, an increase of 23 percent over the previous year, according to a report. Generating more power on-site will help insulate military installations from grid-wide blackouts, Rocky Mountain Institute's Lovins said.
The rule may have the biggest impact on the PJM Interconnection LLC grid, the nation's largest, which serves almost a fifth of the U.S. population from Washington to Chicago.
The region is the epicenter of the boom in natural gas from shale, which has flooded the market with cheap supply, and has forced coal plants and nuclear reactors to close.
Business on 12/07/2017
Print Headline: U.S.' focus on power plants, but industry's on distribution