Department of Energy Releases Bogus Study to Prop Up Coal Plants

, senior energy analyst | April 10, 2018, 9:40 am EDT
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This post is a part of a series on Coal-in-Context

UPDATE (4/16/2018): PJM has released its own response, noting that the NETL report “reaches some sweeping conclusions that are not supported by the specific facts concerning grid operations” and debunking NETL’s claim that blackouts would have occurred without the coal units dispatched during the bomb cyclone.

A few months ago, the Department of Energy (DOE) made a request to one of its national labs, the National Energy Technology Laboratory (NETL), to study the impacts on the electricity grid of a severe cold snap called the bomb cyclone that hit the Northeast in early January 2018. NETL conducts important R&D on fossil energy technologies. The report released last week uses deeply flawed assumptions to inaccurately paint coal (and to a lesser extent, fuel oil) as the savior that prevented large-scale blackouts during the extreme cold, while greatly understating the contribution from renewable energy sources. It also estimates a bogus value for coal providing these so-called “resiliency” services. One has to wonder whether this deeply flawed and misleading study is part of the administration’s continued attempts to prop up the coal industry at all costs, especially after FERC rejected the DOE’s fact-free proposal to bail out coal and nuclear plants late last year. The utility FirstEnergy, which owns and operates a fleet of coal and nuclear generators, immediately seized upon NETL’s report and is petitioning DOE for an emergency bailout.

Separating the Facts from the Fiction

The report emphasizes the fact that fossil and nuclear power played a critical role in meeting peak demand during the cold snap. Across six regions, according to the report, coal provided 55 percent of daily incremental generation, and the study concludes that at least for PJM Interconnection (which manages the electricity grid across 12 Midwest and Mid-Atlantic states as well as DC), “coal provided the most resilient form of generation, due to available reserve capacity and on-site fuel availability, far exceeding all other sources” without which the region “would have experienced shortfalls leading to interconnect-wide blackouts.” The report then goes on to incorrectly estimate value of these “resiliency” services to be $3.5 billion for PJM.

The nugget of truth here is that we do need reserve capacity to be available in times of peak demand, especially during extreme weather events that lead to greatly increased need for heating or cooling. And this is especially important during the winter, when the demand for natural gas for home heating spikes in some parts of the country, leading to higher prices and less natural gas available for electricity generation (since home heating takes priority over electricity generation in terms of natural gas pipeline delivery contracts). In the Northeast, which uses a lot of natural gas for heating, this shortfall in natural gas led to an increase in electricity generation from dirty fuel oil, as the report points out.

However, regional transmission organizations (RTOs) and independent system operators (ISOs) were prepared for the cold snap, and the markets performed as expected. PJM in particular put systems in place to prepare for extreme cold weather following the 2014 Polar Vortex, and electricity markets in the Eastern U.S. are organized to provide payments to power plants for providing either energy (electrons to the grid) or capacity (the ability to switch on and provide a certain level of output if called upon). As fossil generators retire because they are uneconomic, plenty of other resources are under construction or in advanced planning stages and will be ready at the time they’re needed. This is why planning for future electricity needs is critical, and this is the responsibility of regional grid operators—one they take quite seriously.

To that point, grid operators and reliability experts see no threat to grid reliability from planned retirements of coal and nuclear power plants. The North American Electric Reliability Corporation (NERC), whose mission is to ensure the reliability of the bulk power system for the continent, finds in its 2017 Long-Term Reliability Assessment, that (contrary to NETL raising potential reliability issues from future coal and nuclear retirements) most regions of the country have sufficient reserve margins through 2022, as new additions more than offset expected retirements. PJM, in its strongly worded response to FirstEnergy’s petition to DOE for an emergency bailout (see below), stated “without reservation there is no immediate threat to system reliability.

Beyond this, the report and its pseudo-analytic underpinnings really goes off the rails. Let’s take a few of its misleading points in turn.

How to Quantify Resiliency

NETL decided to consider the incremental generation from each fuel source—that is, how much more electricity was produced by each fuel during the bomb cyclone—as a metric for which fuel provides the grid with resilient services. As they put it:

“…we examine resilience afforded by each source of power generation by assessing the incremental daily average gigawatt hours during the BC event above those of a typical winter day.”

This is a bogus metric not only because it simply reflects the amount of unused or idle generation in the system, but also because the reference time period (the first 26 days of December) is a period when there wasn’t much generation from coal and oil. Turns out, there is a lot of coal-fired capacity sitting around because it is more expensive to run compared to natural gas. The only time it makes economic sense to call on these more expensive resources is when demand pushes electricity prices high enough, as it did during the bomb cyclone.

What NETL is basically saying is that the most expensive resources are the most resilient. The report then argues that the high cost of those expensive resources represents the value of “resiliency”—and that these expensive generators should be compensated for providing that value. It’s circular reasoning, and it’s the same argument that we heard all last fall as part of the fact-free DOE FERC proposal, which boils down to this: our assets can’t compete in the marketplace because they’re too expensive, so you (meaning, the ratepayer) should pay us more money to stay online.

The NETL report is essentially trying to invent a metric to define resiliency, and it’s wrong. There are certainly qualitative ideas about what resiliency means:

Infrastructure Resilience is the ability to reduce the magnitude and/or duration of disruptive events. The effectiveness of a resilient infrastructure or enterprise depends upon its ability to anticipate, absorb, adapt to, and/or rapidly recover from a potentially disruptive event.”  –NERC, 2012

But there is no agreed-upon quantitative definition for resiliency, which is one reason FERC has opened a docket to study the issue.

Enter Capacity Markets

The NETL report misses another crucial point. These resources are, in many cases, already being paid to be available when needed. In general, there are several ways that a given generating facility of any kind can make money: by providing energy; by offering capacity on demand; and by providing what are called ancillary services (things like voltage and frequency regulation, which ensure the stability of the grid). Without going into a detailed explanation of how these different markets work, it’s sufficient to understand that these markets exist—and are working as intended.

Instead of doing a detailed analysis of how fossil generators were compensated during the cold snap, or which plants may have been cheaper to run, NETL offers a deeply misleading back-of-the-envelope calculation: it multiplies the increase in the daily cost of electricity above an arbitrary baseline (see next section) by the number of days in the cold snap. This calculation fails to acknowledge that some of these generators are already receiving payments for those services by bidding into a market and agreeing to provide the service of additional capacity when needed.

Cherry-Picking Baselines to Attack Renewables

NETL’s flawed analysis also takes aim at renewables, suggesting that because of “below average” renewable generation, resources like coal and fuel oil had to come online to pick up the slack.

What NETL did here is classic cherry-picking. They compared the generation from renewables during the bomb cyclone to what they called a “typical winter day.” Except that it wasn’t. NETL used a 26-day period in December to compare baseline generation. Wind generation during the bomb cyclone event was actually higher than expected by grid operators in the Northeast and Mid-Atlantic. For example, In PJM, wind output from January 3-7 was 55 percent higher than the 2017 average output, and consistently 3 to 5 times greater than what PJM expected from January 3-5.

Actual Failure Rates

Instead of using NETL’s flawed analysis, looking at the actual failures rate of different generation resources during the extreme weather event provides a more accurate picture of the reliability and resiliency impacts. PJM did this, it turns out. As shown in the chart below, which compares forced outages during the polar vortex and the bomb cyclone, PJM’s analysis finds that coal plants experienced similar failure rates as natural gas power plants during both the 2014 and 2018 cold snaps. For example, on January 7, 2018, a peak winter demand day, PJM reported 8,096 MW of natural gas plant outages, 6,935 MW of coal outages, 5,913 MW of natural gas supply outages, and 2,807 MW of “other” outages (which includes wind, solar, hydro, and methane units).

The NETL study completely ignores the fact that baseload resources like coal and nuclear also pose challenges to reliability—because of limited flexibility, vulnerability to extreme weather events (like the polar vortex and bomb cyclone), extreme heat and drought affecting cooling water, and storm surge. During extreme cold, pipes and even piles of coal can freeze, meaning that coal plants can’t fire up.

FirstEnergy Begs for a Handout

Only a day after NETL’s report was released, the utility FirstEnergy submitted a request to DOE for emergency financial assistance to rescue its uneconomic coal and nuclear plants and heavily cited the NETL report. The basis of the request is section 202(c) of the Federal Power Act, a rarely used portion of the statute that allows DOE to keep power plants online in times of emergency or war. But as NERC, PJM, and others have pointed out, there is no immediate reliability crisis. The request is a Hail Mary pass to save the company from bankruptcy, and is not likely to hold up in court.

Garbage In, Garbage Out.

NETL has produced a document that isn’t worth the few megabytes of disk space it is taking up on my computer. As we often say when evaluating a computer model or analysis—garbage in, garbage out. The study appears to be politically motivated, and it reveals a deep misunderstanding of how the electricity grid works, using simplistic and misleading calculations to justify its conclusions. It is shrouded in insidious, analytic-sounding language that make it seem as if it were a legitimate study. It should be rejected out of hand by any serious person taking an objective look at these issues—as should FirstEnergy’s request for a bailout.

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