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Trump's fight for coal

A proposed grid resiliency rule would subsidise coal plants, at the cost of gas and renewables

A year into his first term, Donald Trump has shown that he intends to do more than simply end the "war on coal", and is leading a fight to restore its preeminence. His administration has ended a raft of Obama-era anti-pollution rules targeting coal plants. His Environmental Protection Agency is seeking to keep the proposed Clean Power Plan, which aims to slash power-related emissions by a third, from ever going into effect.

The most forceful move yet to tip the market in coal's favour, however, is energy secretary Rick Perry's proposed "Grid Resiliency Pricing Rule", which would help prop up struggling coal, and to a lesser extent, nuclear power plants. The rule, which Perry has put forward to the Federal Energy Regulatory Commission (Ferc) to implement, would effectively subsidise any power plant that stores 90 days of fuel on site, ostensibly to bolster the reliability of America's power grid. Since gas-fired plants rely on supply piped in as needed, and the wind and sun can't be stored, the benefits from the proposed rule would flow to coal and nuclear plants.

Over the past decade, coal's share of the power mix has fallen from more than 50% to around 30% today. Close to a fifth of America's coal plants, many of which were built in the 1970s and earlier, have closed down since 2002 and another 5% of the industry is slated to be shuttered by 2020. Nuclear's share of the generation mix has held relatively steady at about a fifth, but a wave of proposed new projects has faltered and 7% of the aging fleet is due to close by the end of this decade.

Natural gas and renewables have snapped up the market share. Nearly all new power generation capacity built over the past decade has been gas, wind or solar-embedding the domination of gas plus renewables in the energy mix for the next generation.

Trump blames environmental regulations for coal's decline. The truth is the market has been transformed by cheap natural gas, unleashed from the nation's shalefields, and falling costs for wind and solar capacity, with anti-pollution rules playing a more marginal role. Compensating coal and nuclear facilities for storing fuel onsite isn't likely to spur new constructions, but it could help some previously uncompetitive plants stay open.

"I think you take cost into account. But what is the cost of freedom?"

While the oil and gas business has been generally supportive of the Trump administration's regulatory rollback and broader fossil-fuel focused energy agenda, the proposed grid reliability rule has pitted gas producers directly against coal and the administration.

America's gas producers have urged Ferc to reject the rule. ExxonMobil, the nation's largest gas producer, wrote: "The proposal would increase costs for consumers, discriminate against natural gas (as well as other power generation sources), and unravel the competitive market structure that Ferc has promoted for two decades".

The supermajor also argued that the underpinning rationale for the rule, that onsite fuel storage merits subsidy because it's more reliable in emergency situations than natural gas, is flawed. "Reliability and resiliency," ExxonMobil said, "was soundly demonstrated by the natural gas system's steadfast performance during Hurricanes Harvey and Irma, when generation powered by other fuels with on-site inventory sometimes faltered."

During Hurricane Harvey in September, some coal-fired generation had to be curtailed because stockpiles were flooded and too saturated to use. Backers of the proposal point to 2014's "Polar Vortex", when the northeast and much of the country was gripped by freezing temperatures, to bolster its claims. During that extreme weather event, gas-fired generation failed to meet demand, partly because plant and pipeline equipment froze up. However, coal hardly fared better. A number of coal plants also had to be shut in, and many onsite coal piles were frozen over.

Devon Energy, an independent producer, pointed out that Perry's own energy department in a recent report dismissed the idea that the rise of gas and renewables had raised reliability risks. "This assertion is surprising due to recently published reports on reliability by both Nerc and the Department of Energy that contradicts the DOE's assertion," Devon's vice president for natural gas marketing Michael Dionisio wrote. In other words, the rule is a solution in search of a problem.

Ferc faces a compressed timeline to decide on the proposed rule, with Perry pushing for implementation before this winter. A major outstanding question is how much exactly the new rule would cost ratepayers, who would ultimately pay for it. At a recent hearing in front of the House subcommittee on energy, Perry argued, "I think you take cost into account. But what is the cost of freedom? What does it cost to build a system to keep America free? I am not sure I want to just put that straight out on the free market.

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