Keep Calm, We Can’t Keep The Lights On

Sean Noble President, American Encore
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The news coming out of Europe is dire and resembles stories we heard in the World War II era. But it’s not because an emboldened dictator seems to be absorbing Eastern Europe at will. Instead, it’s because the United Kingdom will be rationing electricity, just as they did during World War II when the nation was under persistent aerial bombardment from Nazi Germany. This time however, the threat to the British grid isn’t a military one. Instead, it’s political. What’s worse is that this threat has already crossed the Atlantic.

To comply with onerous European Union climate regulations, the U.K. was forced to shutter a number of coal-fired power plants. Instead of replacing these facilities and the capacity they added to the grid, the British turned to unproven green energy technology that notoriously produces scant amounts of electricity at inopportune times throughout the day.

The result is looming nation-wide energy scarcity that has prompted the government to begin incentivizing large energy consumers, like factories, to “voluntarily” power down for hours at a time during the day. Yet with businesses unlikely to be thrilled with the idea of losing many hours of production on a daily basis, we’re likely to see this government policy move quickly from voluntary to mandatory. In the longer term, the U.K. government is reneging on its climate commitments and issuing blank checks to get coal plants back online.

The combined effects of more expensive and less reliable green energy sources, electricity scarcity, and prodigious costs to reactivate mothballed plants will starve the U.K.’s grid of electricity in the near term and strangle in the nation’s economy going forward as more and more resources are diverted towards simply keeping the lights and machines on.

The price of energy is one of the few things that matters throughout the entire economy, impacting the price of literally every good and service; the others being things like labor and land. Without question, inefficient production and distribution of energy will suppress economic growth at some level. The severity of the situation in the U.K. should not be underestimated. Unfortunately for Americans, our government is proceeding full-steam-ahead on replicating it here.

This past month, the Environmental Protection Agency (EPA) announced the Clean Power Plan, a massive, 645 page regulation with the ultimate goal of reducing national Carbon Dioxide emissions from electricity generating sources by 30 percent by 2030. An impact of analysis of a hypothetical but similar regulation found that this type of regulation could take coal-fired electricity from roughly 40 percent of the electricity portfolio to as little as 14 percent by 2030. Taking away a quarter of the supply of almost anything is draconian.

Supporters of the EPA’s proposal, and the EPA itself for that matter, have argued that increased natural gas usage will bridge the gap, and that could certainly be part of the solution. America’s natural gas reserves are impressive and natural gas facilities have proven able to produce large amounts of electricity at competitive prices. Yet, as Democratic Senator Heidi Heitkamp told a group of natural gas industry executives last week, “When that is done, and the stake is through the heart of coal, they will come for you next.” This is no shock. The EPA’s “war on coal” has always been just one front in a protracted campaign waged against all fossil fuels since the 1970s, natural gas included.

Current American energy policy resembles that of our energy starved European counterparts. The EPA’s goal through the Clean Power Plan isn’t a flourishing natural gas industry. Instead its objective is to wipe out the more economical competition to the wind and solar industry. As much as we all may dream of a world powered by nothing but sunny days and cool breezes, the capability to compensate for the demise of the coal industry with green technology is simply not there.

The EPA expects windmills and solar panels, which only even begin to approach economic viability in some of the most remote parts of the country, to help fill at least some of the 20-plus percent hole blown in the national electricity portfolio by the Clean Power Plan regulation over the next 16 years. Yet wind and solar over the last 13 years, years where each enjoyed heavy government subsidization and investment, only managed to grow as a percentage of the American electricity portfolio by 4.2 percent – to 4.4 percent of total net generation. To expect either of these technologies to close a 20 percent or more deficit in 30 years, let alone over the next 15, is a delusion of dangerous grandeur, especially considering that the Energy Information Agency expects electricity demand to grow by 29 percent by 2040.

The result of the EPA’s agenda will not be a fast track to a clean energy future, but demand-side reductions in the future – something better known as rationing.

Sean Noble is President of American Encore. Follow them on Twitter at @AmericanEncore.