EPA’s Disastrous Power Plan in One Minute

Boiling down the EPA’s so-called “Clean Power Plan” into a 1 minute video is no small task, but our friends at the Independence Institute did just that.

As they explain, the plan could shut down affordable, reliable power plants in favor of more expensive energy resources. While the EPA claims that CPP will increase public health and expand the economy, recent studies indicate otherwise.

A study commissioned by the National Black Chamber of Commerce found that EPA’s climate rule would increase both black poverty by 23% and Hispanic poverty by 26%, while causing the loss of 7 million jobs for black Americans and 12 million jobs for Hispanic Americans—all by 2035.

Because minorities and working-class Americans spend more of their monthly budget on energy, increases in energy prices could shrink the amount that families can spend on nutritious foods and medicine. The CPP could cause double-digit electricity price increases in 43 states and severe health consequences.

Even worse, the EPA says the plan may not result in any notable reduction in CO2 emissions. Simply put, EPA’s ballyhooed climate rule will raise electricity prices, force job loss, and increase poverty—potentially to no avail.

O’Malley Pledges to Power Country on Unicorns and Pixie Dust

In an op-ed for the Des Moines Register, presidential candidate Martin O’Malley claims that his “administration would call for 100 percent of our energy to come from renewable sources by 2050.” The former Governor of Maryland and long-shot Democratic hopeful stated “as president, I would use my executive power on day one to declare the transition to a clean energy future the number one priority of our federal government.”

O’Malley’s statement amounts to an empty campaign promise. Not only is it impossible for the U.S. to rely entirely on wind and solar power, but even if it were possible it would be catastrophically expensive. O’Malley’s is the latest in a long line of quixotic predictions over the years about wind and solar power.

The 100% Renewable Myth

The first problem with O’Malley’s promise is that he can’t keep it. Powering our country on 100% renewable energy is neither possible nor desirable. Hydroelectric power, the largest source of renewable energy in the country at about 10%, is a reliable source of electricity, but its use is limited to areas with a steady water supply. Therefore, O’Malley’s plan depends on massively expanding wind and solar production. The problem is that wind and solar are not reliable energy resources. Wind and solar only work when the wind is blowing or the sun is shining—they are inherently unreliable.

Even the meager amounts of wind and solar we use today, about 5% of our electricity use, pose problems for grid reliability. The more wind and solar we force onto the grid, the harder it will be for grid operators to manage the grid, which must be carefully calibrated so supply matches demand precisely at every moment of the day. Volatile spikes in wind and solar production threaten to destabilize the grid, which can lead to blackouts.

For an idea of what it would feel like to live in a world powered 100% by wind energy, click here. Spoiler: it isn’t good.

More Wind, More Problem$

Even if it were possible to run our country on 100% renewable power, we shouldn’t. Natural gas, nuclear, and coal provide 86% of America’s electricity. That’s a good thing, since these sources are abundant, reliable, and affordable. Scrapping these existing sources and replacing them with new renewables, including wind, would be hugely expensive.

As pointed out in a new study by the Institute for Energy Research, electricity from new wind resources is nearly four times more expensive than from existing nuclear and nearly three times more expensive than from existing coal. This will lead to dramatically higher energy costs for American families and harm low-income, minorities, and the elderly the most, forcing these vulnerable populations to make painful tradeoffs between energy and other basic necessities such as food, shelter, and health care. In other words, more mandated wind and solar means more hardship for American families.

The O’Malley–Carter Delusion

O’Malley’s fantasy is not new. In the 1970s, President Jimmy Carter called for massive increases in wind and solar production. He even put solar panels on the roof of the White House, which President Reagan later removed. Consider the following headlines from The Wall Street Journal. The first, from August 1978, predicts that solar power would supply 20% of our electricity by 2000. Today, more than three decades later, solar still supplies less than 1%.

1.22.13.AEA.Pipe.Solar-Headlines

Presidential campaigns are known for over-promising and under-delivering. O’Malley’s pledge to get 100% of our energy from renewable energy is no exception. Except, unlike more vague campaign promises (see “hope and change”), we don’t need to wait four years to figure out we’ve been duped.

What Does It Cost to Fix Something That Isn’t Broken?

The Obama administration is pursuing an aggressive plan of closing existing power plants and providing large subsidies of wind and solar electricity generation. Because of the administration’s regulations, 90 gigawatts (GW) of coal-generated power are projected to close. The Environmental Protection Agency (EPA) tells us that power bills will go down as a result of its regulations, but a new report by the Institute for Energy Research shows why electricity rates will only skyrocket under the EPA’s agenda.

New Sources Such as Wind and Even New Natural Gas Wind More Costly Than Existing Coal and Nuclear

Attempting to replace existing coal and nuclear generators with expensive new sources, especially unreliable wind and solar, will impose heavy costs on electricity consumers. Yet that is exactly what the Obama administration is trying to do by imposing with their regulation of carbon dioxide emissions from existing power plants.

It is only common sense that using our existing resources is much more cost-effective than building new resources that would be required under the EPA’s agenda. However, it has been difficult to put an accurate price tag on these cost differences—until now.

A new report from the Institute for Energy Research, our sister organization, quantifies the costs of existing sources of electricity generation. The main takeaway from the report is below. The chart shows that existing coal, hydro, and nuclear are much, much less expensive than building new plants, even new natural gas plants.

LCOE existing two column

The report compares the levelized cost of electricity from the existing generation fleet (LCOE-Existing), a brand new measure developed by the authors, versus the levelized cost of new generation sources (LCOE-New), a measure commonly used by government and industry. Both measures report the cost of electricity in terms of dollars per megawatt hour (MWh).

Not only are our existing electricity generators low-cost, but these generators could continue to be used for years if federal policies weren’t forcing the retirement of existing power plants.

The cost difference between existing plant and the types of electricity generation the administration is promote is stark. For instance, the report found that electricity from new wind installations is three times more expensive, on average, than electricity from existing coal-fired generators and four times more expensive than existing nuclear. The report also estimates the cost that unreliable wind power imposes on reliable generators.

The levelized cost of electricity from existing sources is an essential measure that has been absent from debates over the EPA’s regulations and renewable energy policy. The paper’s findings dispel the myth that subsidized wind and solar facilities are cost-competitive replacements for existing power plants that use conventional fuels. Never mind that wind and solar cannot produce electricity on demand—the cost of their intermittent electricity is much more expensive than electricity from existing nuclear, hydro, and coal facilities.

LCOE-Existing: Cost of the Existing Generation Fleet

The authors of the report calculate the levelized cost per MWh of the existing fleet by incorporating reams of historical data on the actual expenses of coal, nuclear, hydroelectric, and gas plants as reported to FERC and EIA. The authors also adjust the EIA’s LCOE (LCOE-New) to accurately reflect the imposed costs associated with low-capacity distributed generation sources such as wind. The existing fleet, according to the report, has a far lower cost than new sources:

The report’s findings reveal that existing power plants can produce low-cost electricity for years to come:

  • Existing Fleet Far Cheaper Than New Sources. The authors find that “existing coal nuclear and hydroelectric are about one-third of the cost of new wind resources.”
  • Costs are Lowest at 30 Years. Existing plants have already paid initial transmission costs, and many have retired construction debt and equity obligations, lowering their LCOE substantially. LCOE was lowest for plants at around 30 years of age.
  • Oldest Plants Still Cheaper Than New Sources. The oldest plants of each generation resource were still less expensive than the LCOE from new plants, despite rising operating costs. The existing fleet could reliably produce electricity over the next decade and beyond at a substantially lower cost than new generation resources.

Conclusion

The belief that new solar and wind generators are cost-competitive with existing conventional plants has served as a justification for forcing renewables onto the power grid. State policies such as Renewable Portfolio Standards and federal policies like the Wind Production Tax Credit and the Clean Power Plan work in tandem to encourage renewables and force existing power plants into early retirement. That means these policies will unambiguously increase the costs of electricity generation.

This is the first report to use data reported to federal agencies to calculate the cost of existing sources of generation. The authors have made a vital contribution to the electricity policy debate in offering this new measure, LCOE-Existing, which allows policymakers to accurately assess the costs and benefits of sweeping changes to America’s electricity generation fleet.

Now that the actual cost of the loss of these plants is known, it is obvious that programs that promote sources such as wind and solar will only increase the price of electricity. As the IER report illuminates, there is no question that these policies will place enormous strain on American families and businesses.

For the full report and a complete explanation of the methodology, see The Levelized Cost of Electricity from Existing Generation Resources.

AEA Issues Statement on MATS Ruling

SCOTUS Slaps EPA for Ignoring the Costs of its Reckless Agenda

WASHINGTON — American Energy Alliance President Thomas Pyle issued the following statement on the Supreme Court’s Mercury and Air Toxics Standard (MATS) ruling:

“Today’s Supreme Court decision is an important step toward reining in the Environmental Protection Agency. For too long EPA has ignored the costs of its regulations, which have become so large that they not only harm the economy, but also the health and welfare of American families.

“The Supreme Court made it clear: EPA can no longer ignore the costs of its reckless agenda. This decision shows that states should resist EPA’s calls to submit plans for the upcoming climate rule, which will impose enormous economic burdens on the American people for little, if any, environmental gain.”

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BLM Considers Raising Royalty Rates

Fed Potential 600 AEA

The Bureau of Land Management (BLM) announced in April that it is considering raising the royalty rate for oil and natural gas drilled on Federal lands—currently at 12.5 percent of drilling operations’ production value. The Center for American Progress (CAP) recommended that BLM increase the royalty rate for oil and gas drilled on public lands by at least 50 percent and allow regulators to raise the rate further when the price of these fuels is high because they believe U.S. taxpayers “aren’t receiving a fair share from the development of their resources.” But CAP has it wrong. If CAP wanted to increase returns to taxpayers, instead of promoting increases in the rates, they would promote streamlining permitting and bringing common sense to regulation on federal lands in order to increase natural gas and oil production and dramatically increase revenues to the U.S. treasury.

Oil and gas companies prefer to drill on private and state lands instead of federal lands due to permitting delays and massive amounts of red tape on federal lands. On non-federal lands, massive production increases have made the United States the largest producer of oil and natural gas in the world.

Click here to continue reading on IER.

ICYMI: Half Measures Make Ethanol Mandate Worse

This week, AEA President Tom Pyle penned an op-ed in Roll Call explaining why a corn-only repeal of the broken Renewable Fuel Standard may actually hurt American  families more than the status quo. Pyle lambasts lawmakers’ attempts to re-work an unworkable law, and shows why full repeal is the only way to fix the RFS. Below is the text of the op-ed:

In an effort to show Congress “can work again,” some lawmakers are attempting to make an unworkable law even worse. Recently, several proposals have been floated to “amend” the Renewable Fuel Standard, which requires refiners to blend rising volumes of renewable fuel into gasoline.

Proponents of such bills, including Sens. Patrick J. Toomey, R-Pa., and Dianne Feinstein, D-Calif., would do away with the corn-ethanol mandate but retain the mandate for “advanced” biofuels — products that don’t exist in appreciable, economically viable quantities, if at all.

Lawmakers should reject these half measures. This month, Sen. Bill Cassidy, R-La.,  introduced legislation to do away with the RFS entirely. This approach addresses the reality that by keeping intact the costly “advanced” mandate, corn-only repeal may actually inflict more harm on American families than the status quo. The only real “reform” to the broken RFS is full repeal.

Congress enacted the RFS in 2005 and expanded it in 2007. The law requires refiners to blend 36 billion gallons of biofuel into the nation’s transportation fuel supply by 2022 — a figure that all agree is unachievable and most would argue unwarranted.

This program was doomed to failure. Under the delusion that “if you mandate an industry, it will come,” Congress and President George W. Bush trusted the Environmental Protection Agency to accurately project and mandate biofuel production nationwide.

Congress’ first mistake was passing the RFS. The error was compounded when lawmakers trusted EPA to implement it in a reasonable fashion. Case in point: in 2010, despite mandating millions of gallons of cellulosic biofuel (fuel derived from inedible plant matter), exactly zero gallons of cellulosic were produced. This “minor inconvenience” didn’t deter EPA. The following year, EPA raised the mandate even higher, but still cellulosic producers mustered up no fuel.

In fact, the EPA has so thoroughly mismanaged the RFS that in 2013 the D.C. Circuit Court ruled the agency’s actions amounted to illegal promotion of cellulosic biofuels. Not to mention that the EPA had, until last month, failed to even propose standards for 2014, in violation of federal law.

Instead of accepting reality, the EPA created a new reality. Faced with the fact that cellulosic biofuels aren’t cost-effective enough to be produced in large quantities, EPA simply changed the definition of “cellulosic” to include things such as compressed natural gas and electricity. Since those cannot physically be blended into gasoline, refiners are forced to purchase credits and pass along those costs to motorists.

Unfortunately, the EPA’s incompetence continues. In May, the agency released its long-delayed mandates for 2014 and beyond, calling on refiners to blend 206 million gallons of cellulosic in 2016—even though cellulosic producers have failed to demonstrate a capacity to produce even 1/206th of that amount (until the EPA changed the definition, of course).

It’s long past time Congress learned its lesson. Removing the implied corn portion but keeping the “advanced” mandate does nothing to stop the EPA’s accounting gimmicks. Instead it transforms the RFS into California’s expensive low-carbon fuel standard, which one study showed could raise the state’s fuel prices by more than $2.50 per gallon.

Partial repeal also, ironically, is worse for corn farmers than full repeal. Corn ethanol is a commercially viable product and a reliable blendstock — in the proper quantity. It doesn’t need the mandate to survive.

Under Toomey-Feinstein, however, corn ethanol loses the war for mandated market share. The mandate for “advanced” biofuel remains untouched, which means it continues to rise and shift the market for ethanol away from corn and toward more costly sources.

The big issue with corn ethanol isn’t commercial viability, but the ethanol lobby’s continued push for higher ethanol blends even though we’ve reached the maximum percent of ethanol most cars can safely handle—the blend wall.

If the last decade has taught us anything, it’s that Congress should never have passed the RFS. Yet proposals short of full repeal only make the mandate worse. The desire to “do something” does not require doing the wrong thing. Congress should fully repeal the RFS and give Americans, not the EPA, the power to choose the fuels they deserve.

Thomas Pyle is president of the American Energy Alliance.

Click here to view the original op-ed.

Wind Lobby Blows Smoke on PTC Elimination Act

The American Wind Energy Association (AWEA) sent a letter to Congress on June 18 in opposition to the PTC Elimination Act, a bill that would phase out and eventually end a subsidy that has funneled billions of taxpayer dollars into the wind industry over the last two decades. While AWEA claims that the PTC creates competition and benefits the economy, the subsidy stifles innovation and amounts to nothing more than corporate welfare for a mature industry. Below we correct the record on several of AWEA’s misleading claims from the letter: 

CLAIM: “Eliminating the renewable energy Production Tax Credit (PTC) as proposed in H.R. 1901 would take away an effective, business tax incentive…”

FACT: This legislation does not “take away” the wind PTC, but rather, it phases out the subsidy over time. In fact, AWEA has supported a phase out in the past. In Dec. 2012, AWEA admitted a “Phase out of wind energy [PTC] would enable U.S. industry to become fully cost-competitive.” That is exactly what this bill would do—wind down wind subsidies over the next decade. It provides short-term certainty to wind developers and protects the long-term interests of taxpayers. AWEA recently supported a phase out and they should do so again.

CLAIM: “Reforming our nation’s tax code is an important national policy priority, but targeting one industry and making retroactive changes to existing law is misguided.”

FACT: If Congress is serious about tax reform, then the PTC is a good place to start. It is an egregious example of corporate welfare that a pro-growth tax reform plan would eliminate. It is poor tax policy to provide a subsidy that encourages the recipient to sell its product at a loss. The subsidy is so generous that wind producers can actually sell their electricity at a loss and still make money. This is called “negative pricing” and this legislation would significantly reduce this effect.

CLAIM: “[T]aking away the PTC and making retroactive tax policy changes would threaten an important economic opportunity for workers and their families.”

FACT: The wind PTC is a net jobs loser. Jobs created by subsidies lead to more jobs being destroyed elsewhere in the economy. One study of Spain’s green energy subsidies found that for every 1 green job created, 2.2 jobs were eliminated elsewhere. That’s because subsidies divert capital from the most economical projects to the most politically favored.

CLAIM: “[T]he value of the PTC flows to consumers in the form of lower electric rates by promoting market competition.”

FACT: The “value” of the PTC actually “flows” to wealthy wind developers at the expense of taxpayers, while making electricity more expensive for families. The PTC creates artificial demand for wind energy, which is much more expensive than other forms of electricity generation. As Warren Buffett has explained, wind energy is not cost competitive without subsidies: “On wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.” Buffett made it clear that the PTC is most beneficial to hedge funds and wind companies who are able to reduce their tax rate at the expense of all Americans.

CLAIM: “While the wind industry has grown over the years, it still accounts for less than 5% of total electric generation in the U.S. and recent PTC expirations have led to dramatic job losses and shuttered manufacturing facilities.”

FACT: The wind industry frequently complains about how a lack of “certainty” over PTC renewal harms investment in wind projects. This subsidy has existed for over 20 years. Advocates have continually said they just need it for a few more years, always pushing the end date to some uncertain future. This legislation ends the uncertainty associated with continual one-year extensions and puts a firm deadline on a phase out. If the wind industry wants “business certainty,” they should get out of the subsidy business.

Conclusion

Decades of subsidies have discouraged innovation in the wind industry, as companies relied on generous handouts to stay afloat. Even the wind industry has supported a phase out of the subsidy in the past. The PTC Elimination Act winds down the PTC in a reasonable way.

Study: Ohio Energy Mandate Will Cost State Billions

A majority of states have Renewable Portfolio Standards (RPS)—energy mandates that require utilities to produce or purchase a certain amount of electricity from renewable sources, such as wind and solar. These costly regulations have detrimental impacts on employment, income, and investment, leading policymakers in several states to take steps to either freeze or eliminate their renewable mandates.

Ohio’s RPS, passed in 2008, requires utility companies to source at least 12.5 percent of their electricity from renewable sources by 2025 (intervening years have lower requirements that build over time). Ohio froze its standard for two years while a committee investigates its economic effects, but a new study from the Institute of Political Economy at Utah State University has found that the RPS will have a resoundingly negative impact on the state’s economy.

Cost of Ohio’s Energy Mandate

Supporters justify renewable mandates by measuring the supposed benefits associated with reducing carbon dioxide emissions, but there is limited data on the costs of these regulations on ratepayers. A new study sheds some light on those costs.

The Institute of Political Economy quantified the cost of Ohio’s RPS on the state economy, finding that, by 2026, the renewable mandate will:

  • There were 29,366 fewer jobs in Ohio at the end of 2014 than there would have been without the RPS in place.
  • A family in Ohio made $3,842 less in 2013 than they otherwise would have had the RPS not existed.
  • Ohio families could potentially face $1.92 billion increase in electricity costs beyond what they would have paid in the absence of an RPS.

Action in Other States

Given the starkly negative economic effects of the RPS, it is unsurprising that other states are taking steps to freeze or repeal their standards, reflecting the growing momentum against these costly regulations.

West Virginia became the first state in the country to fully repeal its RPS in January, and Kansas followed suit in May. Colorado, Texas, and New Mexico have all passed legislation in at least one chamber to revise or repeal their RPS, and legislation has been introduced in North Carolina to freeze its renewable mandate.

Conclusion

In light of the negative impacts highlighted by the Institute of Political Economy’s study, Ohio’s lawmakers should follow through with a full repeal of its RPS. The costs of RPS on state economies far outweigh their ambiguous benefits, and all states should reconsider renewable mandates before the worst of the economic damage sets in.

Ex-Im Bank Won’t Solve Nuclear Industry’s Problems

Congress has until the end of June to decide whether to reauthorize the Export-Import Bank, the official credit export agency of the U.S. government. While the bank’s stated mission “is to ensure that U.S. companies—large and small—have access to the financing they need to turn export opportunities into sales,” Ex-Im has gained a reputation for favoring large, politically connected firms to the detriment of small businesses, the free market, and American families.

Ex-Im’s cronyism can be seen across the economy, particularly in the energy space. Those supporting Ex-Im, including some nuclear energy advocates, see the bank as a necessity. In a recent letter to Congress, the Nuclear Energy Institute (NEI) argued that without support from Ex-Im, it would be difficult to secure financing for the construction of nuclear reactors abroad.

Congress should let the Ex-Im Bank expire. The solution to inadequate nuclear financing is not to extend Ex-Im. Rather, nuclear advocates should focus on addressing regulations, subsidies, and mandates that put nuclear power at a competitive disadvantage in both domestic energy markets and export markets. To name a few specific policies, we recommend: 1) cutting excessive regulations that impede the licensing and construction process for reactors, 2) eliminating the wind Production Tax Credit and solar Investment Tax Credit, and 3) repealing state Renewable Portfolio Standards. Further, insofar as international banking requirements are the real impediment, nuclear advocates should focus on reforming those requirements rather than reauthorizing Ex-Im.

By focusing on Ex-Im instead of the measures outlined above, nuclear advocates miss the root cause of nuclear’s troubles: excessive government intervention. NEI’s letter is a classic example of the observation that each government intervention into the economy begets more intervention. Costly regulations and subsidies do not justify more of the same. Ex-Im supporters would get better results by streamlining regulations and reducing subsidies than asking Congress to fix government-created problems with more government.

Fixing Regulatory Barriers that Stifle a Strong Domestic Industry

One of the main barriers to a thriving nuclear industry that can compete domestically and internationally is the outdated regulatory process at the Nuclear Regulatory Commission. The current system primarily focuses on technologies that have existed in the market place for years—namely large, light water reactors. While light water reactors will likely remain the backbone of the nuclear industry for years to come, the regulatory apparatus makes it nearly impossible for new disruptive technologies to come to market. This effectively stifles the kind of innovations that could alter the domestic and international nuclear markets and make U.S. companies more competitive.

Improving the regulatory process so it moves quicker and is more technology-neutral would go a long way toward reducing costs and increasing U.S. competitiveness. Focusing efforts on Capitol Hill to these problems would do much more for the long-term health of the nuclear industry than Ex-Im ever will or could.

Streamline Permitting Process for Nuclear Exports

NEI argues in its June 4 letter to Congress that “commercial lenders are averse to financing nuclear power projects for regulatory reasons,” puts the U.S. nuclear industry at a disadvantage when competing against foreign firms. This is correct: for example, it takes between 15 to 90 days for Russian, Japanese, or Korean companies to obtain licenses for the export of nuclear materials, components, and technology. U.S. companies are forced to wait 6 months to a year.

However, taxpayer subsidies are not the solution. Instead of reauthorizing Ex-Im, the real problem holding nuclear exports back is onerous and overlapping regulations. The nuclear export licensing process falls under the jurisdiction of four agencies: Department of Energy, Department of State, Department of Commerce, and the Nuclear Regulatory Commission. Each of these agencies has a lengthy review and flawed process that companies must navigate before any proposal is approved.

Take the DOE process. According to the Government Accountability Office, “DOE rarely meets its existing target time frames for processing Part 810 applications, which calls into question whether these targets are realistic and achievable in light of its resources and authorities.” Further compounding the licensing process is the ineptitude of the interagency review process. GAO confirms that “Interagency review times missed DOE’s 30-day target for 85 of the 89 applications approved from 2008 through 2013.” The current process is broken, and no amount of funding from the Ex-Im can fix that.

Removing impediments in the licensing process would encourage lenders to invest in nuclear projects and grow the industry, thereby eliminating the need for the Ex-Im bank. This could be done in a number of ways. First, the Nuclear Regulatory Commission should be the sole agency responsible for regulating the sale of nuclear equipment and technologies, and its review process should be streamlined. Additionally, firm time limits should be placed on the licensing process to avoid overruns on the number of days between submittal and approval. These time limits should be competitive with other nations to ensure that U.S. nuclear companies can compete abroad.

Eliminate Subsidies that Harm Domestic Nuclear Power: Wind PTC and Solar ITC

While permitting delays hurt the domestic nuclear power industry, nuclear is also hurt because the federal government directly subsidizes some of the competition to nuclear. For example, the wind Production Tax Credit (PTC) and solar Investment Tax Credit (ITC) harm nuclear power by making wind and solar appear artificially less expensive. Enacted in 1992, the PTC gives wind developers a lucrative tax credit worth 2.3 cents per kilowatt-hour of electricity produced. The solar ITC gives solar producers a 30 percent tax credit on the cost of installing residential and commercial properties.

The wind PTC is so lucrative that wind producers engaged in predatory pricing because of the federal subsidies. Wind producers who receive the PTC can sometimes pay the electric grid to take their power and still profit—a phenomenon known as negative pricing. This puts existing nuclear power plants—which cannot bid artificially low prices into the grid because they cannot claim the PTC—at a competitive disadvantage to wind. Recent reports have also highlighted the problem of negative pricing when it comes to solar power. Fundamentally, the problem is that intermittent supply from wind and solar facilities simply cannot match demand in real time.

Why does negative pricing particularly harm nuclear producers? As the Energy Information Administration (EIA) notes, “negative prices generally occur more often in markets with large amounts of nuclear, hydro, and/or wind generation.” That is because each of these technologies has an incentive to continue operating even when its facilities are temporarily paying the grid to take their power. Nuclear plants are designed to run at full output and not “ramp” up and down. In times of very low demand, nuclear plants will sometimes take negative prices rather than go through the long and expensive process of lowering their output.

Unlike nuclear producers, the wind industry actually profits from negative prices because the PTC is such a large subsidy. Wind producers receive PTC payments per unit of power produced (even when the power has no value whatsoever to the grid), so they flood the grid with uneconomic power and ignore the distress signal sent by negative prices. It is also important to note that wind and solar subsidies have a draining effect on reliable power plants, whether or not prices actually dip below zero.

The threat to baseload generation from negative prices is very real. Already, Dominion closed its Kewaunee Nuclear Plant in Wisconsin 20 years ahead of schedule and Entergy has retired its . Both companies cited economic considerations as the reason for closing the plants. The DOE’s assistant secretary for nuclear energy referred to this emerging pattern of nuclear plants shutting down early as “a trend we are clearly very, very concerned about.”

Negative pricing caused by the PTC has a chilling effect on private investment. Potential lenders will only assume the financial risk of investing in new nuclear plants if they have a reasonable expectation of earning a return on that investment. Eliminating the wind PTC would send a signal to investors that nuclear power can compete and profit.

Repeal Renewable Energy Mandates

Renewable energy mandates are another government policy that disadvantages nuclear power. Currently, more than half of the states have enacted some form of an energy mandate, or RPS, which requires utilities to generate a certain percentage of their electricity from renewable sources. Though the requirements differ from state to state, the result is the same: intermittent wind and solar benefit at the expense of reliable nuclear, natural gas, and coal—and families foot the bill.

State energy mandates paired with direct subsidies for renewables present a two-pronged threat to nuclear. Energy mandates artificially increase demand for wind and solar, requiring utilities to accept renewable power over reliable power. Then, wind and solar can bid artificially lower prices into the grid since their power is subsidized, and the true cost hidden, by the wind PTC and solar ITC. These two factors combine to depress prices for wind and solar while elbowing out reliable sources of power such as nuclear.

Investors are well aware of this scheme. As long as subsidies and mandates continue to distort the market and hide the true cost of wind and solar, nuclear will remain cost-prohibitive to private capital. Focusing on increasing subsidies through the Ex-Im Bank instead of on these more fundamental impediments to the domestic nuclear energy industry risks losing the forest through the trees.

Conclusion

Nuclear energy is a proven, low-cost, reliable source of energy. Unfortunately, the licensing process for nuclear exports is too long and arduous for many investors to stomach, and other regulatory hurdles here and internationally only make matters worse. Meanwhile, subsidies and mandates for renewable energy make operating some nuclear facilities cost prohibitive, which has a chilling effect on future investment. This is why most of the new nuclear power plants are being built overseas, where regulations aren’t as onerous.

There is no doubt that American nuclear energy can thrive in the global market, but the Export-Import Bank isn’t the answer. Instead of trying to renew Ex-Im to boost their prospects, nuclear proponents should focus on streamlining the export licensing process. Domestically, eliminating subsidies for wind and solar and repealing state renewable energy mandates would help establish a more solid role for reliable nuclear power. Each of these policy changes would encourage more private-sector investment, thus building a stronger U.S. nuclear industry that is able to compete in foreign and domestic markets without taxpayer handouts.

Opinion: Fossil Fuel Divestment: Flight From Reality

Institute for Energy Research Founder and CEO Robert Bradley, Jr. penned an op-ed on Forbes.com this past week explaining why the struggling divestment movement is a solution looking for a problem. The text of the piece is below:

Forbes-logo

Fossil Fuel Divestment: Flight From Reality

By Robert Bradley, Jr.
June 15, 2015

“The effect of [divestment] decisions on the consumption of fossil fuels will be nil; the effect on the growth of institutions’ endowments will be negative.”

– George Will, “‘Sustainability’ Gone Mad on College Campuses,” Washington Post, April 15, 2015.

There is a movement afoot to slow the wheels of modern life. A highly emotional, anti-industrial fringe is urging institutions to “divest” — or sell investments in the oil, gas, and coal industries. Their goal is to keep dense, reliable, affordable energy in the ground and out of our lives.

Divestment is a solution looking for a problem. It is destined to fail for at least three reasons.

First, every American is a prolific fossil-fuel user, and substitutes (ethanol for gasoline, wind/solar for electricity) are limited, expensive unreliable options. Second, many — if not most — Americans are rewardingly invested in the oil, gas, coal, and electricity industries. Third, profit-seeking investors can be expected to buy as fringe emotional investors sell, leaving stock prices unchanged.

The irony is that the decades-old case against fossil fuels has weakened. Instead of social costs, we should think in terms of net social benefits and welcome a consumer-driven, taxpayer-neutral, free-market energy future.

Growing But Futile Movement

The list of emotional sellers is growing. Since 2012, the divestment campaign has expanded to more than 220 colleges, faith organizations, pension funds, and other institutions. Some have already sold; the others have pledged to do so.

Syracuse University is a recent example of a high-profile institution jumping on the divestment bandwagon. Influenced by climate change activist Bill McKibben’s 350.org movement, the university announced its intent to redirect the fossil-fuel portion of its $1.2 billion endowment to “clean energy” investments.

Top-tier research institutions have also joined in. Stanford decided last year to cease all direct investments in companies engaged in coal mining. Oxford University, while rejecting formal divestment, stated that it will not invest in companies that mine coal or heavy oil.

‘Market Failure’ Mirage

The fuss is long on emotion and short on evidence The Big Four issues of fossil-fuel sustainability–depletion, pollution, energy security, and climate change — have all weakened over time.

Depletion? We are not running out of oil, gas, and coal. In fact, the opposite is true. Critics who once said it would not be economical to increasingly produce oil or gas (coal supply has never been an issue) now insist that there is too much to produce and consume. Hence the call for divestment so firms have less capital to extract hydrocarbons.

Air pollution? That’s been going down as more carbon-based energy has been combusted. Since 1970, the aggregate emissions of the six criteria pollutants — including carbon monoxide, lead, and sulfur dioxide — dropped by more than two-thirds. More improvement is coming as newer, cleaner equipment replaces current inventory. By 2017, for example, smog-forming emissions from motor vehicles will have fallen by 99.4 percent since 1970.

Energy Security? The U.S. Energy Information Administration forecasts continued growth in domestic oil and gas production. By 2017, the United States will be a net exporter of natural gas. On the oil side, today’s net imports of 25 percent (way down from the peak of 60 percent in 2005) is forecast to fall to 14 percent by 2020.

Climate Change? “Where the heck is global warming” remains the major question. Global warming has nearly stalled since the late 1990s, and modest increases are well below model forecasts, as I have detailed in a previous Forbes.com post. A recent attempt to reanalyze global temperature to increase warming to predicted levels is controversial and remains the outlier.

The “pause” or “hiatus” in global warming is mainstream — and it continues. And the data on hurricanes and other extreme weather events does not suggest a positive correlation with carbon dioxide (CO2) atmospheric concentrations, which are increasing.

Compare the intellectual case for fossil fuels to the desperate analogies of Bill McKibben for divestment, the most notorious being apartheid. He recently suggested that “divestment will undercut the industry’s political power, just as happened a generation ago when the issue was South Africa.”

Such a comparison to the modern energy industry is morally repugnant — and inane. The institutional racism of apartheid has nothing to do with the fossil-fuel industries reliably and affordably supporting high standards of living for billions.

Social Costs — or Net Benefits?

Instead of exaggerated “social costs” of fossil-fuel reliance, the benefits of oil, gas, and coal over its (inferior) substitutes should be appreciated. Consumers voluntarily support gasoline, diesel, and gas-fired electricity for good reasons — and taxpayers are burdened by renewable energy for bad reasons.

Consider home energy costs. Thanks to the fracking revolution, natural gas is abundant in the United States — so electric bills are plummeting.  According to research firm IHS, households saved $1,200 in disposable income on average in 2012 thanks to lower energy costs and utility bills. By the end of this year, that figure could be closer to $2,000.

The domestic energy boom has also led to savings at the pump, thanks to plummeting oil prices. The Energy Information Administration predicts that the average U.S. household will spend nearly $550 less on gasoline this year than in 2014.

Sonecon Analysis

While the domestic energy boom is helping Americans save money on everyday expenses, investments in the industry also power Americans’ retirement savings. Almost 29 percent of fossil fuel industry shares are held by pension funds, with another 18 percent in IRAs.

These are good investments. A study by Sonecon found, for example, that oil and natural gas stocks comprising 3.9 percent of pension holdings generated 8.6 percent of the returns in those accounts. (The four-state study was from 2005 — 2009.) Another Sonecon study found that $1 invested in these stocks in 2005 grew to $2.30 by 2013. Over the same time period, that $1 would be worth only $1.68 without fossil-fuel investment.

University investments in fossil fuels have helped to grow their endowments considerably. Sonecon found that between 2001 and 2011, investments by college endowments in the oil and gas industry produced the highest returns of any other asset class. And during the 5-year period of 2006 — 2011, oil and gas stocks generated yearly average returns just under 8 percent. That was 172 percent higher than the average returns for all U.S. stocks.

According to the National Association of College and University Business Officers (NACUBO), university endowments hold an estimated $23 billion in energy stocks. Revenues generated from these investments support financial aid packages, professors’ salaries, and new infrastructure.

Fischel Analysis

Daniel Fischel, former head of the University of Chicago’s law and economics program, examined the growth of two hypothetical investment portfolios over the last 50 years. According to his analysis, $100 invested in an optimal portfolio in 1965 would yield $14,600 by 2014. But a fossil-fuel-divested portfolio yielded only $11,200 over that same time period — a shortfall of 23 percent.

In other words, divestment threatens to compromise and shrink university endowments. With aggregate endowments of $456 billion in assets (NACUBO), the Fischel-estimated cost of divestment is $3.2 billion each year. That translates into less financial aid, and thus less opportunity, for needy students.

“I conclude that the costs to investors of fossil fuel divestiture are highly likely and substantial, while the potential benefits — to the extent there are any — are ill-defined and uncertain at best,” Fischel warns.

Fossil-Fueled Future

Fossil fuels are our future. According to the U.S. Energy Information Administration’s 2015 Annual Energy Outlook, the United States will depend on fossil fuels to supply 80 percent of its energy needs in 2040. That’s not far off last year’s 82 percent. Globally, three-fourths of primary energy consumption will come from fossil fuels in 2040, the International Energy Agency predicts.

And these numbers will be higher if governments scale back their massive subsidies to renewable energies in the false hope of achieving parity with the real thing.

Instead of vilifying an industry that has been key to the enhancement of the quality of life, colleges and universities should welcome traditional energy investing. Swarthmore, for example, despite strong objections from green activists, recently decided “not to modify its investment guidelines to allow for use of the endowment to meet social objectives.”

“The divestment impulse recognizes no limiting principle,” George Will wrote several months ago. He fears “shedding investments tainted by involvement with Israel, firearms, tobacco, red meat, irrigation-dependent agriculture, etc.” where “progressivism’s dream of ever-more-minute regulation of life is realized but only in campus cocoons.”

One can only hope the divestment craze ends so that nonprofits will not have to choose between expanding educational opportunity and kowtowing to a futile political crusade.

Robert L. Bradley Jr. is the founder and CEO of the Institute for Energy Research. This post originally appeared on Forbes.

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