The Price Tag For Uprooting America’s Electric Grid

Published: 21 Sep 2015

The Price Tag For Uprooting America’s Electric Grid

By Thomas Pyle
President of the Institute for Energy Research

What does it cost to keep the lights on? The question is surprisingly difficult to answer. Yet it affects the quality of life for everyone.

The answer matters now more than ever. On Aug. 3, the Environmental Protection Agency issued its Clean Power Plan for Existing Power Plants, which requires states to reduce carbon-dioxide emissions by 32% (from 2005 levels) by 2030. To achieve this goal, states will have to close coal-fired electricity-generating plants and replace them with natural gas and renewables. The Energy Information Administration expects coal plant closures to reach 90 gigawatts by 2020 under the EPA’s rule—enough to deliver reliable power to about 73 million Americans.

We have been led to believe that this energy transition can be quick and painless, and even save money on utility bills. The White House declared that the regulation would “protect public health” and “reduce energy bills for households and businesses.” This is not so, and the data prove it.

A study commissioned by my organization, the Institute for Energy Research (IER), finds that scrapping the existing coal fleet to build new generators would impose expensive and unnecessary costs—and the public would foot the bill.

The authors of the study are George Taylor, an engineer and director of Palmetto Energy Research, and Thomas Stacy, a researcher who has served on the American Society of Mechanical Engineers Energy Policy Committee. Using data from the Energy Information Administration and the Federal Energy Regulatory Commission, they found that existing nuclear plants generate reliable electricity, on average, at $29.60 per megawatt-hour—one million watts expended for one hour. Existing hydro, coal and natural gas aren’t far behind, at $34.20, $38.40 and $48.90, respectively. These figures are derived from self-reported data the government collects annually from individual generators.

But compare these costs with the costs of new sources. At $73.40 per megawatt-hour, electricity generated from new natural gas plants is about twice as expensive as from existing coal plants. This is due mostly to the plant’s upfront capital costs.

Replacing coal with renewable sources is even more expensive. The IER study found that installing and operating new wind facilities would cost $106.80 per megawatt-hour. This owes largely to wind power’s parasitic effect on the electric grid—forcing reliable generators to ramp up and down, and thus operate at higher cost, to accommodate random and volatile gusts of wind.

While one compares the costs of renewable power sources on paper, wind and solar can’t replace traditional energy sources in the real world. When the wind isn’t blowing or the sun isn’t shining, wind and solar require reliable sources like coal and natural gas to back them up. This imposes additional costs on natural gas plants, which have to be ramped up and down rapidly in response to unpredictable wind and solar output.

Still, the IER study is the first of its kind to compare the cost of electricity from existing sources with that of new sources. Previous studies only compared the cost of electricity from new sources. That is, if a new facility is being constructed, what technology can produce electricity over the life of the plant at the lowest cost? Now a price tag can be put on policies that force power plants to retire early.

Given the new study’s cost data, state governments should think twice about working with the EPA. The agency has called on states to submit compliance plans, and the regulators intend to impose a federal plan on states that don’t. Either option will force states to uproot the electric grid, imposing economic hardships.

Consider a recent study by Energy Ventures Analysis, which found that the EPA’s clean-power plan would raise household electric and heating bills by $680 annually. This would leave families, especially low-income households, with less money to spend on basic necessities like food, medicine and housing. While the EPA has called its carbon plan a “justice issue,” the agency would inflict the most harm on those who could least afford it.

The American people deserve better. The nation’s existing coal, natural gas and nuclear power plants could continue to deliver reliable and affordable electricity for decades to come, if not for the EPA’s costly and disruptive climate agenda.

Mr. Pyle is the president of the Institute for Energy Research, which receives funding from individuals, foundations and corporations, including those in the energy industry.

Reprinted with permission from the Institute for Energy Research. 

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