Report: Department of Energy recommends bailout of failing coal plants

Stock SectorJune 1, 20186min12
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In a draft memo to be circulated on Friday, the Department of Energy (DOE) argues in favor of using a wartime rule called the Defense Production Act to bail out failing coal and nuclear plants, according to Bloomberg, which obtained a copy of the memo.

The memo suggests that the Energy Department could force grid operators to buy power or electric generation capacity from a list of pre-determined power plants for two years, “to forestall any future actions toward retirement, decommissioning or deactivation.”

During that time, the DOE would conduct a study of vulnerabilities in the US power grid system. The justification for using the Defense Production Act would be that keeping unprofitable power plants running is a matter of national security until the two-year vulnerability study is complete.

The memo allegedly wrote that “Too many of these fuel-secure plants have retired prematurely and many more have recently announced retirement.” According to Bloomberg, the memo added that these coal and nuclear plants are being replaced by natural gas and renewable power generation that is not secure or resilient.

Such a statement has been contradicted by several power grid operators, including PJM, one of the largest independent system operators in the country. The recent “bomb cyclone” system of extremely cold weather in the northeast this winter showed off that the grid could operate well despite coal retirements.

Boosting the flagging coal industry was one of the key campaign promises of President Trump, despite the fact that it’s one of the most polluting forms of energy that the US has, and it employs significantly fewer people than either the natural gas, oil, or solar power industries. Over the previous year, Energy Secretary Rick Perry has tried to justify a number of different actions to make good on Trump’s promise, to little avail.

Initially, Perry issued a politically-charged memo commissioning a study to find the regulatory causes of coal retirements. The resulting study, however, said that no particular regulation was causing coal plants to retire: instead the cheap cost of natural gas was convincing power companies to switch over to that fuel. Perry then proposed a rule that would require power purchasers to compensate coal and nuclear plants over and above the compensation they were already due for their part in supplying “baseload” energy. However, the rule had to be approved by the Federal Energy Regulatory Commission (FERC), and that regulatory body found that there wasn’t sufficient evidence to approve Perry’s rule.

Failing that, coal and nuclear plant operator FirstEnergy requested that the DOE use an emergency order to bail out one of the company’s subsidiaries shortly before it declared bankruptcy. In April, E&E News reported that an interagency group was exploring the use of the Defense Production Act, which gives the President broad power to boost industries that are deemed necessary for national defense.

The draft memo circulated today is not an official proposal for a rule, but it does suggest that the Trump Administration is getting more serious about invoking the Defense Production Act to the benefit of coal and nuclear.

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