Can Trump Change The Direction Of U.S. Energy?

The missing document might be titled “Trump's Electricity Policy Will Make America Great Again." Donald Trump, the GOP's presumptive Presidential nominee, has a utility policy. Needless to say it may have consequences. Finding it just requires some reading between the lines.

Mr. Trump’s major presentation on energy, “An America First Energy Plan”, delivered in North Dakota the other day contained these basic ideas:

1) Less environmental regulation, less government interference, and cut EPA funding;
2) Build the Keystone XL Pipeline;
3) Declare “American energy dominance,” eliminate oil exports from OPEC and other so-
called "hostile” nations;
4) Save the coal industry;
5) Use “revenues from energy production” to fund infrastructure investment.

Except for that last liberal nostrum about infrastructure, Mr. Trump's four points accurately summarize conventional Republican Party energy policy. The benefits of these policies had been conveniently quantified by a think tank noted for connections to the fossil fuel industry. Mr. Trump made one neo-Hayekian observation but gave away the game at the end:

“We will get the bureaucracy out of the way … so we can pursue all forms of energy… The
government should not pick winners and losers. Instead it should remove obstacles to exploration.”

The last word says it all. The best solution is to find more conventional fossil fuel resources. This solution has been the standard in Republican circles at least since the end of the Second World War. Mr. Trump's electricity policy, as derived from Republican energy policy, is predictable though not overtly stated.

Diluting or abandoning existing and contemplated environmental standards will let loose countervailing forces. Abandonment of clean air and greenhouse gas restrictions will lessen pressure on electric generators to retire old coal-fired power plants. But that will not be adequate to encourage construction of new coal-fired power plants. They require too much up front capital and have higher total levelized costs per kwh produced than gas-fired stations (see Table 1).

That brings us to fracking, whose costs might rise if subject to strict environmental regulation, especially in regard to methane emissions. Coal consumption has fallen because coal cannot compete successfully with natural gas at current prices. Relaxing environmental regulation of natural gas will simply perpetuate gas’s competitive edge.

Since Trump, like many Republicans, is skeptical about global warming, his administration might eliminate renewable subsidies. This would slow the growth of renewables, but probably not stop it altogether. Renewable mandates are set by individual states and some renewables (as they approach grid parity especially in higher cost regions) are cost competitive even without federal subsidies.

Note: Data from EIA sources. Construction costs for 2013 plant. Levelized cost in 2013 $ for plant entering service 2020. Related: Russia’s Oil Giants Feel The Crunch But Stay In The Black

Power plants, of course, take time to permit, site and build. The industry has already committed to a significant percentage of the generating stations it will put into service over the two possible terms of a Trump Presidency no matter what policy emerges. As seen in Table 2, natural gas will fuel roughly 45 percent of new capacity and renewables another 45 percent. The gas covers the base load and reliability needs and the renewables dampen the carbon emissions while costing roughly the same as power from a conventional coal station. The future is here: natural gas and wind, mostly on-shore.

Oddly enough, ending the renewable boom might not please many electric utilities. It could deprive them of opportunities in the only dynamic, growing sector of the business, investing in renewable resources and in transmission lines that bring renewable energy to load centers and in clean power stations to replace old (and written off) dirty ones. Keeping old stations in operation might also take pressure off reserve margins in certain regions (thereby both lowering profit opportunities for independent generators and investment opportunities for transmission builders).

(Click to enlarge)

Note: Data from Nuclear Energy Institute. Related: Oil Refining Capacity Set To Surge, But Can It Boost Oil Prices?

On the whole, the Trump/Republican electricity program will add a few years to the operating lives of old coal-fired stations. This could give the coal industry a temporary reprieve. It would also deny utilities a few attractive business opportunities and dim the appeal of (presently above market) expensive renewables.

But it will do little to encourage new coal-fired stations and will do nothing for nuclear. At present the chief attraction of nuclear, despite its cost, is its minimal carbon emissions. This holds little appeal since Mr. Trump, like others in his party, apparently does not believe in anthropogenic or global climate change.

By Leonard S.Hyman and William I. Tilles for Oilprice.com

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