Entities respond to DOE report on electricity markets, reliability

transmission lines june 28 elp 4

Several entities have responded to the recently released U.S. Department of Energy (DOE) “Staff Report to the Secretary on Electricity Markets and Reliability,” which found, for instance, that the recent rise of natural gas as a top power generation resource, the increase in variable renewable energy penetration, the flattening of electricity demand growth, and a host of policy issues have negatively impacted traditional baseload generation, particularly coal and nuclear power plants.

As noted in the report, Energy Secretary Rick Perry in April issued a memorandum requesting a study to examine electricity markets and reliability.

The study uses data collected by the Energy Information Administration (EIA) for 2002 through 2017, and looks back before 2002 on a few specific issues. The report also said that the 2002-2017 time range captures several important developments, such as that:

·      Centrally organized wholesale electricity markets – RTOs and ISOs – were in the early stages of implementation in 2002. Competition within centrally organized markets among a large segment of merchant generation did not take effect until the mid-2000s. Three RTO/ISOs initiated mandatory capacity markets in 2006-2007: New York ISO, PJM Interconnection, and ISO New England

·      The emergence of a large amount of unconventional natural gas production – the shale revolution – started in 2006-2007. The consequent drop in natural gas prices began in 2009, under the combined impacts of low demand during the economic recession and an increase in supply

·      Driven in part by federal and state policies, tax incentives, and mandates, quantities of renewable resources – specifically wind and solar, and at levels high enough to alter traditional patterns of grid operation – began to impact certain areas around 2010

Findings of the study

According to the report, while centrally organized markets have achieved reliable wholesale electricity delivery with economic efficiencies in their short-term operations, changing circumstances have challenged both centrally organized and, to a lesser extent, vertically integrated markets.

Markets need further study and reform to address future services essential to grid reliability and resilience, the report said, noting that system operators are working toward recognizing, defining, and compensating for resource attributes that enhance reliability and resilience – on both the supply and demand side. However, the report said, further efforts should reflect the urgent need for clear definitions of reliability and resilience-enhancing attributes and should quickly establish the market means to value or the regulatory means to provide them.

Another finding listed in the report is that markets recognize and compensate reliability, and must evolve to continue to compensate reliability, but more work is needed to address resilience.

“Recent severe weather events have demonstrated the need to improve system resilience,” the report said. “The range of potential disruptive events is broad, and the system needs to be designed to handle high-impact, low probability events. This makes it very challenging to develop cost-effective programs to improve resilience at the regional, state, or utility levels.”

The report continued: “Planning, practice, and coordination on an all-hazards basis and having a mix of resources and fuels available when a major disturbance occurs are both essential to fast response. Work still remains to identify facilities that merit hardening; stage periodic exercises and drills so that governmental agencies and utilities are prepared for emergencies; and ensure that wholesale electricity markets are designed to recognize and incentivize investments that would achieve or enhance resilience-related objectives.”

The report also said that between 2002 and 2016, 132,000 MW of generation capacity retired – representing about 15 percent of the total 2002 installed base – and 390,500 MW of new capacity was added.

“The biggest contributor to coal and nuclear plant retirements has been the advantaged economics of natural gas-fired generation,” the report said.

Another factor contributing to the retirement of power plants is low growth in electricity demand, according to the report, which also noted that dispatch of renewable has negatively impacted the economics of baseload plants.

“Since 2007, the contribution to total generation from wind and solar has grown quickly, accelerated by government policies and mandates,” the report said. “State renewable portfolio standards (RPS) have been the largest contributor – associated with 60 percent of renewable growth since 2000 – followed by federal tax credits and government research (which contributed to the dramatic drop in wind and solar technology costs). Because these resources have lower variable operating costs than traditional baseload generators, they are dispatched first and displace baseload resources when they are available.”

The report said that the continued closure of traditional baseload power plants calls for a comprehensive strategy for long-term reliability and resilience.

Among other things, the report noted that energy storage will be critical in the future if higher levels of renewable are deployed on the grid and require additional balancing of energy supply and demand in real time.

On transmission

The report noted that a robust transmission system is needed to provide the flexibility that will enable the modern electric system to operate. While much transmission has been built to enhance reliability and meet customer needs, continued investment and development will be needed to provide that flexibility, the report said.

The report noted that the challenge for building transmission continues to revolve around the three traditional steps involved, each of which can be time-consuming, involved, and complex: demonstrating a need for the transmission project; determining who pays for the transmission project; as well as state and federal agency siting and permitting.

FERC has taken steps to help with the first two, with reforms such as Order No. 1000, which remains a work in progress, the report said, adding that transmission planning entities, as well as regional state-based groups, are also contributing to improving those process steps.

In addition, the report said that the current and past administrations have issued various executive orders and other initiatives to improve the processes involved in siting and permitting of transmission when federal lands or waters are involved.

Recommendations on policy

As noted in Perry’s Aug. 23 cover letter, the study contains a “series of recommendations from the Department of Energy staff meant to inform and guide policy makers, regulators, and the general public in future conversations about the challenges we face.”

According to the report, DOE and related federal agencies should accelerate and reduce costs for the licensing, relicensing, and permitting of grid infrastructure such as nuclear, hydro, coal, advanced generation technologies, and transmission. DOE should review regulatory burdens for siting and permitting for generation, as well as gas and electricity transmission infrastructure, and should take actions to accelerate the process and reduce costs, the report said.

In addition, the report said, utilities, states, FERC, and DOE should support increased coordination between the electric and natural gas industries to address potential reliability and resilience concerns associated with organizational and infrastructure differences.

The report also said that where feasible and within its statutory authority, FERC should study and make recommendations regarding efforts to require valuation of new and existing ERS by creating fuel-neutral markets and/or regulatory mechanisms that compensate grid participants for services that are necessary to support reliable grid operations.

Also, the report said that DOE should support utility, grid operator, and consumer efforts to enhance system resilience. Transmission planning entities should conduct periodic disaster-preparedness exercises involving electric utilities, regional offices of federal agencies, and state agencies, the report said.

DOE should also focus research and development efforts to enhance utility, grid operator, and consumer efforts to enhance system reliability and resilience, the report said.

Responses to report

Edison Electric Institute President Tom Kuhn was among those who issued statements on the report, saying that EEI commends DOE for undertaking the study.

“While we are still thoroughly reviewing the study, EEI has long advocated that our customers are best served by public policies that promote a balanced and diverse energy mix, which includes both traditional and renewable energy sources, and that also recognize the vital role 24/7 energy sources play in sustaining a secure, reliable, and resilient energy grid,” he said, in part, in an Aug. 23 statement.

FERC Chairman Neil Chatterjee, in an Aug. 24 statement, said that the report by DOE staff “highlights many activities that the commission is carefully considering, including examining ways to enhance wholesale electric capacity markets and improve price formation in those markets, to increase electric and gas coordination, and to assure bulk power system reliability and resilience. The commission will remain focused on these and other issues that are critical to maintain the nation’s competitive wholesale electric markets and keep the lights on.”

In a separate Aug. 24 statement, NERC said, in part, that it appreciates DOE’s focus on reliability and resiliency, and that it “looks forward to our continued work with DOE and other stakeholders toward assuring the reliability and resiliency of the North American bulk power system.”

Solar Energy Industries Association President and CEO Abigail Ross Hopper said in an Aug. 23 statement, in part: “While we are still reviewing the specifics of this study, it’s been proven time and again that a diversified electricity mix is good for the overall system and poses no threat to the reliability of our nation’s grid. On the contrary, solar and other renewables provide cost savings, relieve pressure on our nation’s infrastructure and improve the grid’s overall performance.”

American Wind Energy Association CEO Tom Kiernan said in a separate Aug. 23 statement that the wind industry appreciated the opportunity to contribute analysis to DOE during the process, and that AWEA agrees with DOE that it makes sense to determine how a portfolio of domestic energy resources can ensure grid reliability and resilience. He said, in part, “DOE’s recommendations to value essential reliability services, which wind provides; to minimize regulatory barriers to energy production; and to accelerate infrastructure and transmission development are prudent and will help continue America’s wind power success story.”

Mary Anne Hitt, director of Sierra Club’s Beyond Coal campaign, said in a separate statement, in part: “The recommendations in this report try to downplay the clear benefits of clean energy to our power grid, economy, and electricity customers, and instead construct a fictional world where aging coal and nuclear plants are needed for grid resilience and can compete in today’s twenty-first century energy markets.”

PJM, in an Aug. 24 statement, said, in part, that the report is comprehensive and "acknowledges that wholesale power markets are working and providing reliability at the lowest possible cost and that power supply resources are more diverse than they have ever been. It also highlights the importance of expediently addressing needed reforms in energy price formation followed by a focus on grid resilience. These issues are a top priority."

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