https://theconversation.com/subsidizing-coal-and-nuclear-power-could-drive-customers-off-the-grid-87159
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Subsidizing Coal, Nuclear Could Drive Customers Off-Grid
November 14, 2017
By Joshua M. Pearce
Within the next month, energy watchers expect the Federal Energy
Regulatory Commission to act on an order from Energy Secretary Rick
Perry that would create new pricing rules for certain power plants that
can store fuel on site to support grid resilience. This initiative seeks
to protect coal-fired and nuclear power plants that are struggling to
compete with cheaper energy sources.
Perry’s proposed rule applies to plants that operate in regions with
deregulated power markets, where utilities normally compete to deliver
electricity at the lowest price. To qualify, plants would have to keep a
90-day fuel supply on site. Each qualified plant would be allowed to
“recover its fully allocated costs.”
In other words, plant owners would be able to charge enough to cover a
range of costs, including operating costs, costs of capital and debt,
and investor returns. Federal Energy Regulatory Commission Chair Neil
Chatterjee has stated that the extra money to keep coal and nuclear
plants running “would come from customers in that region, who need the
reliability.”
Will consumers willingly pay higher bills to support coal and nuclear
power? My research group has analyzed another option: Going off-grid and
generating electricity with home-based solar energy systems. Recently we
compared the cost of grid power to off-grid renewable generation in
Michigan’s Upper Peninsula. We found that within a few years, a majority
of single-family owner-occupied households could afford the necessary
generating systems and economically defect from the grid.
Is reliable electricity at risk?
Coal and nuclear technology are struggling to compete as prices decline
for solar, wind and natural gas generation. Some states, along with the
Trump administration, are worried about early retirements of coal and
nuclear plants and looking for ways to avoid more.
In early 2017 Perry commissioned a grid reliability study, which found
that cheap natural gas and flattening electricity demand were the main
drivers for coal and nuclear plant retirements, and projected more
closures to come. Shortly after the report was released, Perry proposed
this rule.
Many responses have been critical. Jon Wellinghoff, who chaired the
Federal Energy Regulatory Commission under Presidents George W. Bush and
Barack Obama, said: “It’s gonna be as expensive as hell. Expensive as it
can be because we will be paying the full freight on coal and nuclear
plants.”
ICF Consulting estimates that Perry’s proposal would cost ratepayers an
extra US$800 million to $3.8 billion annually through 2030. Others
calculate the cost at up to $10.6 billion annually, depending on the
rule’s design.
What can consumers do?
If retail prices do actually go up as a result of Perry’s proposed
changes to the wholesale energy markets the Federal Energy Regulatory
Commission regulates, ratepayers can manage their electric bills in
three ways. First, they can reduce electricity use by adopting efficient
technologies, such as Energy Star products, and conserve energy through
steps such as turning off lights.
In areas with favorable rules, consumers can save much more by
installing rooftop solar power while staying connected to the grid. The
key requirement is that their utility must allow net metering. Under
this arrangement, when homes generate more electricity than they need,
they can sell excess power into the grid and receive credit for it on
their electric bills.
The levelized cost of electricity from solar is lower than grid
electricity in most of America. This makes it normally profitable to use
solar power to reduce household electricity bills, if homeowners can
afford the up-front investment to install solar systems. The most
solar-friendly states, which are mainly in the Northeast and on the West
Coast, support solar with tax credits, rebates and other policies.
However, home solar systems are even becoming popular in southern and
Appalachian states that provide less support for renewable energy.
But widespread adoption of home solar power can reduce utility profits
and shift electricity demand patterns in ways that require power
companies to make upgrades as their customer bases shrink. This
conundrum has sparked debate over a scenario known as the “utility death
spiral”: As customers leave the grid, utilities sell less energy and
have to raise prices to cover their fixed costs. More customers install
solar in response, pushing electricity prices up further and driving
more customers away.
In response, some utilities have tried to slow the move to solar through
steps such as distorting net metering rules and campaigning to limit
access to net metering.
Defecting from the grid
Such tactics raise the cost of grid-tied solar systems and frustrate
many customers. They give consumers incentive to pursue a third option:
Disconnecting from their utilities and relying on on-site solar
generation, supported by energy storage (and sometimes backup) systems.
One recent study investigated state-level markets in New York, Kentucky,
Texas, California and Hawaii. It found that solar hybrid systems were
already profitable for consumers in some places, particularly Hawaii,
and could become so for tens of millions of customers over the next
several decades.
My team studied the potential for grid defection in northern Michigan,
one of the most challenging places in the United States to go solar.
Winters there are dark and brutally cold, so households can rely
entirely on solar power only in warm seasons.
However, solar coupled with so-called cogeneration systems and batteries
can provide enough energy on cold, cloudy winter days. These small-scale
combined heat and power systems, which are made mainly in Japan, usually
run on natural gas and produce heat as they generate electricity. They
can function year-round and are most effective in the winter when solar
production is low. The costs of these hybrid systems are declining.
In our study we first calculated electricity demand by household size
and type. Second, we compared costs of conventional grid electricity to
an off-grid solar-hybrid system. Finally, to assess how many households
could afford to invest in solar-hybrid systems, we analyzed household
incomes and minimum credit score requirements for financing from the
Michigan Saves program, which makes loans to help residents reduce
energy costs.
We found that by 2020, about 75 percent of year-round Upper Peninsula
households could meet their electricity needs using off-grid solar
systems at less cost than staying on the grid. Not all households could
afford to invest in these systems, but we found that by 2020, about 65
percent of single-family owner-occupied households would have access to
affordable capital to purchase hybrid systems.
Our findings suggest that if Perry’s proposal is enacted and raises
rates, it could drive many ratepayers to go off-grid, leaving fewer
customers to cover the costs of maintaining the grid. This could raise
electric rates substantially for utilities’ remaining customers,
potentially triggering further defections. In sum, subsidizing coal and
nuclear plants could destabilize the electric power system instead of
strengthening it.