It’s ironic that the man who once supported getting rid of the Department of Energy (DOE) is now using it as an impetus to propose bailouts to insolvent power plants. Rick Perry, the head of the Department of Energy, recently presented a bailout of coal and nuclear power plants in a September 29th proposal. If that seems like an overreach of the department, you may be right?
Perry requested a study back in March to analyze base load power in the United States. Contrary to the DOE’s own evidence, Perry has claimed that the electrical grid has become compromised and increasingly unreliable to meet base consumer demand.
Perry has proposed making power plants “fuel-secure” (bailing them out) as the only path toward restoring resilience in the power grid. Under Perry’s proposed solution, the Federal Energy Regulatory Commission (FERC) would cover the cost of deregulated plants to address problems of resiliency. The plants that would happen to qualify under Perry’s plan just so happen to be nuclear and coal powered plants.
With the proliferation of solar energy, energy aggregation programs, and cheap natural gas, coal and nuclear plants have not been able to compete against their cheap, resilient alternatives. The proposed bailout would eliminate all costs for qualifying plants and leave consumers to foot the bill for more expensive, dirty electricity.
One study estimated that, if enacted, this would significantly drive up electricity costs in 30 states, most notably in the northeast (coal country). In highly regulated energy markets, the demand for natural gas production would unfortunately drop, leading to a greater glut in natural gas supply.
NAFTA and Natural Gas Exports
Trump’s love of coal and America First policies could actually harm an American First Energy Plan. Under current NAFTA agreements, more than a quarter of Mexico’s electricity grid is powered by American natural gas companies.
Trump has recently suggested supplying Europe’s energy needs with natural gas exports after Russia infamously held the EU’s power grid hostage after curtailing exports to many of its member states. For countries, such as the UK, this would drastically lower electricity prices and improve their economy.
Until a tangible deal is in place, natural gas production in the United States could seriously suffer. If NAFTA is renegotiated to slap tariffs on energy trade, natural gas prices could collapse.
Over the past decade, a shale gas boom and the rise of LNG trade has shifted the United States from an energy dependent nation to one of the world’s biggest exporters of energy. With a glut of natural gas production being unmatched by consumer demand, natural gas prices and production could collapse. This comes at a time when oil prices are being held historically low, just under $50 a barrel, by OPEC countries.
This discussion has generally been misled by cutting down Obama-era regulations, such as the Clean Power Plan. Regulations generally have marginal effect on electricity prices, considering that natural gas production and clean energy alternatives have been driving prices down for decades.
What This Means?
As many conservatives applaud the repeal of costly energy regulations, the discussion is generally a red herring. In fact, repealing free trade agreements and propping up insolvent industries with taxpayer money are a far greater burden on the free-market and are disingenuous to competition. By reducing consumer demand for natural gas domestically and cutting out its biggest customer internationally, natural gas prices could go into a freefall and the industry could take a beating. In the end, it’s the American consumer and the US labor market that suffers the most. Is this what American First truly embodies?