The United States urgently needs to settle on a roadmap for the next 30 years of domestic power generation. And that’s because recent attempts to strengthen the nation’s electric grid are running headlong into opposition from an industry that prefers the status quo.
The U.S. Energy Information Administration (EIA) estimates that America’s electricity needs will grow 12.5 percent through 2040. That may be a conservative prediction — given prospects for greater economic expansion ahead. But even such modest growth in electricity demand poses real challenges. Although America’s power grid has lost significant baseload generating capacity over the past decade, it must still meet the hefty demands of a population now growing past 320 million people.
This is where things start to get interesting. When I served on the Missouri Public Service Commission, our guiding principle was always keeping the lights on. In Missouri, that meant a heavy reliance on both coal and nuclear power, along with a smaller segment of natural gas generation. We also drew roughly 3.4 percent of our electricity from “renewable” sources, mostly hydroelectric power.
Right now, Energy Secretary Rick Perry appears to be making a similar calculus as he assesses the nation’s overall electricity demands. Earlier this year, his staff found an unsettling decline in America's “baseload” power generation — the coal and nuclear plants that together provide the great bulk of America’s electricity. Perry responded with a proposal to secure the nation's power grid by stopping the further dismantling of these workhorse power plants.
Essentially, Perry is urging the Federal Energy Regulatory Commission (FERC) to revalue power stations that maintain long-term fuel supplies. That approach necessarily favors coal and nuclear — because they are the only two generating sectors capable of storing fuel on site and operating autonomously for weeks and months at a time without resupply. This makes them far less susceptible to weather disruptions or to the pipeline vulnerabilities that confront natural gas plants.
A reasonable solution: stop the bleeding. Unfortunately, this plan doesn’t sit well with competing energy sources — the wind and solar producers who claim Perry’s proposal is unjustified “market intervention,” if not outright favoritism. But that opposition, stoked by environmentalists betting the house on a bold leap into renewable power, is dangerous as well as hypocritical.
Both wind and solar power remain troublingly intermittent — and require backup generation from gas and coal for every moment when the wind doesn’t blow and the sun doesn’t shine. As such, they remain expensive and cumbersome forms of power generation. And while their market share has grown impressively, they still only contribute 7 percent to America’s total electricity needs. In short, they are by themselves unreliable for an economy that needs power in all conditions, and at all times of day.
More to the point, the renewable fuel industry can’t credibly complain about government intervention in a free market. A recent Greentech Media article revealed that tax credits now account for 50 to 60 percent of the funding for an average wind farm, and 40 to 50 percent for the average solar project.
Greg Wetstone, CEO of the American Council on Renewable Energy, described these tax credits as the “principal financing mechanism that has fostered growth of the renewable energy sector since the 1990s.”
There’s a bit of a shell game here, too. Thanks to both the Investment Tax Credit (ITC) and Production Tax Credit (PTC), outside companies invest in wind and solar projects just to claim the associated tax breaks — even when the projects themselves make little economic sense on their own.
Warren Buffett famously said, “We get a tax credit if we build a lot of wind farms. That's the only reason to build them. They don't make sense without the tax credit.”
So here we are at a crossroads. Washington can continue to throw good money after bad, and keep subsidizing wind and solar projects. Or it can make a prudent appraisal of America’s continuing demand for electricity — and prevent further destruction of the coal and nuclear plants that keep the lights on night and day, good weather and bad.
Terry M. Jarrett is an energy attorney and consultant who has served on both the National Association of Regulatory Utility Commissioners and the Missouri Public Service Commission.