As a result of the energy renaissance, brought about by advances in technology, coal and nuclear power are being phased out of our energy budget. Natural gas has the potential of becoming the nation’s leading source of electrical power.
Even though innovative technologies are expanding the use of natural gas and the efficiency with which it is produced, there are challenges that could prevent market forces from making natural gas the dominant energy source for producing electricity.
What are these challenges and why do they persist given that natural gas is the lowest cost source of electricity, already providing 35 percent of America’s power?
There have always been traditional concerns about price volatility, pipeline disputes and competition for low-cost gas between electricity producers and manufacturers. The shift from coal and nuclear power to natural gas has raised anxiety about economic dislocation and job losses.
Some worry that gas supplies will run out, even though that fear should have been put to rest by the expansion of shale gas that has taken place in the past decade. As of result of hydraulic fracturing — “fracking” — domestic gas production has increased 60 percent. The resource base has been judged sufficient for about a century at current rates of consumption. Evaluations of the resource base show ample resources for the future. And, advances in technology are opening up new frontiers for gas production from methane hydrates.
The adequacy of supply concern is also fueled by increasing exports of natural gas to Mexico. Exports of natural gas to the south — and growing exports of liquefied natural gas (LNG) — are good for the U.S. economy and produce global benefits. Strong demand for LNG from Europe will help weaken Russia’s grip on Europe’s energy supply and its use of curtailment for geopolitical purposes.
Asian countries with cities polluted from a reliance on coal are using imports of American LNG to shift away from coal, improving their environment and public health. This is good news for the United States and for the developing world.
During the Obama administration, Peter Davis, a former Energy Department assistant secretary for nuclear energy, said that 52 percent of the nation’s nuclear-generating capacity was at risk of being retired prematurely. Since 2012, U.S. nuclear plant owners have closed or announced closure of 14 nuclear plants due to competition from low-cost natural gas and subsidized renewable power. Many other nuclear plants are now considered at high risk of being shut down.
The loss of nuclear capacity, however, has an upside. It further expands the market for natural gas. About 100 U.S. nuclear plants supply nearly 20 percent of the nation’s electricity. Since the cost of nuclear power is continuing to rise while the cost of gas-fired power keeps dropping as a result of the shale revolution, the shift to natural gas can lower power costs for consumers and industry.
Electricity users should benefit from a switch to lower-cost gas, unless state governments get in the way. Illinois, which is on the verge of bankruptcy, and New York state have approved as much as $10 billion in subsidies to keep several money-losing nuclear plants open over the next decade. Several other states with financially distressed nuclear plants — Ohio, Pennsylvania, Connecticut and New Jersey — are also considering subsidies.
Subsidies are poor public policy. They misallocate resources and create a moral hazard by shielding investors from the full consequences of their actions.
No matter how it might choose to camouflage subsidies, the Nuclear Energy Institute is lobbying the Federal Energy Regulatory Commission to intervene with wholesale electricity markets and regional transmission organizations to reward nuclear power with revenues for its low-carbon electricity production.
On its face, the idea of approving a nuclear subsidy because nuclear power doesn’t produce carbon emissions is at least a case of double counting. Ratepayers who have already paid higher costs to build nuclear plants producing no emissions are now being asked — in the case of those in Illinois and New York state — to pay hundreds of millions of dollars a year more to keep unprofitable nuclear plants afloat.
What’s particularly remarkable about the bailout for nuclear power is that it is disconnected not only from the real interest of electricity users but also from the efficient and cost-effective operation of the electrical power system itself. Nuclear power provides baseload electricity, which is essential for reliability. But natural gas can do that more cost-effectively and also meet surge needs.
Illinois and New York state should repeal their ill-advised nuclear subsidies, rely on market forces and technology, and let the utilities bear the economic consequences of shuttering plants that have become a financial burden on consumers and businesses.
The era in which utilities relied on coal and nuclear power for base load generation is over for environmental and cost reasons. Today, electric utilities should focus on providing cost-effective reliable power and maintaining the reliability and security of the grid.
