Entities respond to DOE report on electricity markets, reliability
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.”