| SECRETARY OF ENERGY PERRY WANTS $88 BILLION A YEAR TO SUBSIDIZE 70 OR MORE
The Hill reports he told a September Veterans for Energy meeting:
“I think it’s really important for people to understand, in general terms, there is no free market in the energy industry, And anybody that gets up and says that is lying — is not, with all due respect, educated as to what the reality of the market is.”  |
Counterflow: Cash for Clunkers Redux |
Remember the Cash for Clunkers program? Inefficient cars paid to go away.
The Energy Department’s directive to FERC last week is Cash for Clunkers with a twist: inefficient generators paid to stay.
The original Cash for Clunkers was an economic stimulus for new stuff to replace the old stuff. The DOE’s Notice of Proposed Rulemaking subsidizes the old stuff to stop the new stuff: a sort of stimulus in reverse. (See related story, Perry Orders FERC Rescue of Nukes, Coal.)
So we might say the DOE version is a Twisted Sister sort of twist on the original.
Bailing out the Retiring, Retired and Canceled Clunkers, and then Everyone Else
We know with certainty that the DOE proposal subsidizes the inefficient because those are the plants that will opt for the federal rate guarantee instead of market-based rates. How will this play out?
DOE says there are 34 GW in projected retirements over the next five years. Under the DOE proposal, none of that would retire and instead would go on the federal dole.
And then there’s the 71 GW that already retired over the last six years but will likely return, like “Night of the Living Dead,” for that federal rate guarantee.[1]
And how about all those canceled nuclear projects?
So we’ll have around 100+ GW of uneconomic clunkers crashing the markets, and of course crashing market prices. This will force all the economic plants that depend on legitimate market prices to join the federal dole.
Natural gas plants will do this by simply adding 90 days’ worth of oil tanks.[2]
What will all this cost consumers? DOE doesn’t even try to answer that question, but here’s one way of looking at it. First, we can assume that FERC won’t want thousands of individual rate cases for all the power plants in all the RTOs.[3]
So FERC would need some sort of standard compensation. Let’s say it adopts a cost of new generation, maybe $400/MW-day.[4] Generation in the RTOs is around 530 GW; add the roughly 70 GW of retired clunkers that will return from the dead for about 600 GW on the federal dole. That’s about $88 billion annually.
So we are talking about tens of billions of dollars a year squandered first on what are, by definition, uneconomic resources, and then by paying economic resources that are rendered uneconomic by the clunkers and forced onto the same federal dole.
I can’t help noting how Republicans blasted the original Cash for Clunkers,[5]which had a one-time cost of $3 billion. The DOE version is tens of billions of dollars every year, forever.
“Natural gas interruptions removed less than 5% of the total capacity required to meet demand on Jan. 7, [2014], while equipment issues associated with both coal and natural gas units made up the far greater proportion of forced outages.” (Emphasis added.)
