LS Power Letter Published in Wall Street Journal on June 13, 2018: Government Is Bad at Picking Energy Winners
Government intervention in the energy markets, as contemplated, will lead to an energy grid that is less reliable and resilient than the one we have today.
Your editorial “Rick Perry’s Obama Imitation” (June 6) is largely on point. However, it is important for the public to understand the ultimate consequence of policies like those proposed by Energy Secretary Rick Perry. Government intervention in the energy markets, as contemplated, will lead to an energy grid that is less reliable and resilient than the one we have today. Subsidizing only certain plants leads to a greater supply of power generation than would otherwise be available based on undistorted market prices. While the existence of the subsidies creates greater overall costs for consumers, this generation oversupply will result in lower revenues for the plants that don’t enjoy a subsidy. Lower revenues mean less capital available for investment and maintenance. Investment in new plants and technology will be hampered and the existing stock of plants will become less reliable and suffer increased outage rates, ultimately leading to an outdated grid that is significantly less secure than it should be.
Even those plants that receive subsidies are unlikely to make material investment in support of reliability. The very mandate that keeps them operational is the result of administrative fiat. Those supports can be withdrawn just as easily as they were implemented. Many voices are coming out in opposition to Secretary Perry’s initiative. However, this is simply the latest and broadest effort to use out-of-market subsidies to support a particular form of energy production. If they continue, these efforts—whether intended to favor renewables or bail out uneconomic coal and nuclear power plants—will ultimately lead to the demise of competitive markets. Politicians and regulators should be looking for market-based solutions.
CEO, LS Power
[Response to https://www.wsj.com/articles/rick-perrys-obama-imitation-1528240847?mod=article_inline ]