Regulators should reject Perry’s plan for coal in America

WINTER is coming to America. That simple statement of fact ought not to send shivers down policymakers’ spines. But Rick Perry, the energy secretary, sees it as a call to arms. To defend Americans from blizzards, polar vortices and other treacherous weather which, he says, threatens the country’s electricity grid, he proposes throwing a multi-billion-dollar lifeline to struggling coal-fired and nuclear plants if they can keep emergency fuel on standby for 90 days.

On December 8th the Federal Energy Regulatory Commission (FERC) was given a 30-day grace period to decide whether to support Mr Perry’s plan. It should refuse to do so, or substantially amend it. His scheme is a confection of bad policy, faulty economics and thinly disguised patronage. But it also raises a genuinely difficult question: how to keep grids working smoothly in an era of cheap natural gas, which is hard for baseload power plants to compete with, and renewable energy, which is dependent on the vagaries of the wind and sun?

The FERC’s decision, by contrast, ought to be an easy one. The rationale behind Mr Perry’s proposal is weak; just 0.00007% of power cuts in 2012-16 were caused by problems with fuel. In emergencies the biggest risk to grids is not power generation at all, but the poles and wires along which electricity flows. The answer to that threat is microgrids—local systems which may mix renewables, batteries and diesel generation and can operate independently of the main grid.

The politics of the proposal are also suspect; it looks like a boondoggle to coal bosses who backed President Donald Trump’s election campaign (see article). Worse, it threatens to reverse decades of energy deregulation. In his antipathy to congressional tax credits for clean energy, Mr Perry wants the FERC, an agency whose main job is to preserve the integrity of wholesale power markets, to distort them further by also subsidising coal and nuclear power.

Baseload of rubbish

In the process, he gives short shrift to a fuel that has been one of the greatest fruits of America’s free market in recent decades—natural gas. Thanks to the shale revolution, last year gas eclipsed coal as the largest source of power generation in the country. Natural gas is not perfect. It emits carbon dioxide and, because it is hard to store, its price can soar during emergencies—witness supply disruptions in Europe this week and shivering schoolchildren in China (see article). But no fuel is fail-safe. Coal is far dirtier: small particles from coal-fired power plants cause the early deaths of thousands of Americans each year. It can also freeze. Nuclear is clean but expensive, and can be knocked out by flooding. PJM, a north-eastern grid operator that could benefit from Mr Perry’s largesse, says his plan is a bad idea. It thinks gas is reliable enough.

Mr Perry has nonetheless raised an important issue. Coal and nuclear struggle to compete with cheaper alternatives. Yet because wind and solar energy are intermittent, other sources of energy must pick up the slack. Rather than fighting subsidy with subsidy, regulators should promote market-friendly mechanisms to ensure stability of supply. Already, producers tender for contracts to supply the market. As flexibility becomes more important, they can bid to provide more ancillary services, such as natural-gas plants that ramp up and down quickly, demand-response pricing to reduce peak consumption, and battery storage. Auctions are also the best way to decide which baseload plants stay in service. PJM’s capacity-performance payments reward producers for having power available when needed, and impose a big penalty if it is not.

America has never had so many options for making electricity reliable, cheap and green. Throwing subsidies at the dirtiest fuel of the lot is not one of them.