Government Is Bad at Picking Energy Winners

Stock SectorJune 13, 20187min11

Rick Perry, U.S. secretary of energy, speaks during the Americas Society/Council of the Americas conference at the U.S Department of State in Washington, D.C., May 8.

Rick Perry, U.S. secretary of energy, speaks during the Americas Society/Council of the Americas conference at the U.S Department of State in Washington, D.C., May 8.


Andrew Harrer/Bloomberg News

Your editorial “Rick Perry’s Obama Imitation” (June 6) is largely on point. However, it is important for the public to understand the ultimate consequence of policies like those proposed by Energy Secretary Rick Perry. Government intervention in the energy markets, as contemplated, will lead to an energy grid that is less reliable and resilient than the one we have today. Subsidizing only certain plants leads to a greater supply of power generation than would otherwise be available based on undistorted market prices. While the existence of the subsidies creates greater overall costs for consumers, this generation oversupply will result in lower revenues for the plants that don’t enjoy a subsidy. Lower revenues mean less capital available for investment and maintenance. Investment in new plants and technology will be hampered and the existing stock of plants will become less reliable and suffer increased outage rates, ultimately leading to an outdated grid that is significantly less secure than it should be.

Even those plants that receive subsidies are unlikely to make material investment in support of reliability. The very mandate that keeps them operational is the result of administrative fiat. Those supports can be withdrawn just as easily as they were implemented. Many voices are coming out in opposition to Secretary Perry’s initiative. However, this is simply the latest and broadest effort to use out-of-market subsidies to support a particular form of energy production. If they continue, these efforts—whether intended to favor renewables or bail out uneconomic coal and nuclear power plants—will ultimately lead to the demise of competitive markets. Politicians and regulators should be looking for market-based solutions.

Paul Segal

CEO, LS Power

New York

Natural-gas dependence on pipeline transportation adds a huge layer of vulnerability to both cyber and physical attack. This exposure is minimized where generation facilities are able to maintain fuel stockpiles on-site, as with coal and nuclear.

During the 2014 polar vortex, coal provided effectively 100% of the incremental response to the increased electric demand. Even after all of the coal unit retirements since 2014, coal was still able to provide 55% of the incremental generation in the bomb cyclone early this year.

You applaud FERC’s investigation of compensation for “fast-start resources,” but it’s another attempt to accommodate the renewable-energy and natural-gas duopoly.

In fact, the overarching task of grid managers today is accommodating the distortions caused by the investment tax credit for solar and the production tax credit for wind renewable energy. Due to billions in taxpayer subsidies, these resources have driven wholesale market prices below the variable cost of coal and nuclear generation, but consumers don’t see lower bills because they’re paying for the cost of new transmission at an annual clip of $20 billion to move renewable energy to population centers.

Despite the phaseout in the 2015 omnibus bill, wind developers can still quality for 10 years of subsidies with startup by the end of 2023. Correcting these problems requires much more than chipping away at renewable subsidies.

Dennis Rackers

Fordland, Mo.

Here’s the rub. A completely free market for electricity may drive down cost and price (good) but doesn’t deliver a power mix and transmission grid that are robust and reliable for the long term (really bad).

Dueling subsidies aren’t the answer, and neither are baseless commitments to future reliance on renewables. But at some level, government needs to formulate and then implement, via regulation and economic incentives, a coherent national energy strategy that will stand the test of time. Tricky business, but essential.

Jack DeVine

Spring Lake, N.J.

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