Editor: The following is a viewpoint from Arvin Ganesan, vice president for federal policy, and Dylan Reed, senior associate for federal and state policy at national business group, Advanced Energy Economy.
On Aug. 23, the Department of Energy (DOE) released the highly anticipated Staff Report to the Secretary on Electricity Markets and Reliability, aimed at identifying the causes of coal and nuclear plant closures and the impact of those closures on the reliability of the electric power system. As AEE argued from the beginning, the fundamental premise that Secretary Rick Perry used to initiate this study mischaracterized the primary drivers of our changing resource mix and significantly overstated the impact on grid reliability of today’s diverse and flexible resources.
Indeed, DOE’s staff report largely confirms what industry experts have been saying all along: Competition from cheap natural gas, not renewable policies, is forcing uneconomic resources to retire, and the trend toward these new resources – both gas and renewables – is being managed by grid operators across the country without loss of reliability. To quote the report directly: “Energy and capacity markets presently provide for adequate levels of reliability.”
Nonetheless, the report managed to find ways to suggest that uncompetitive power plants are in economic trouble because they are undercompensated in the market – and since they are supposedly so essential to the electric power system, a way must be found to put them in the money. If such a way is found, it must logically come at the expense of those resources that are now winning in the marketplace – natural gas, solar, and wind generation; energy efficiency; demand response; and energy storage. Meanwhile, electricity customers should watch their wallets.
From reliability to resilience
How is it possible to document that the changes in resources are the natural result of technology change and market competition and the grid is being reliably operated with the new resources, yet still maintain that the power sources being displaced are so vital they need to be preserved, whatever the cost? This is accomplished, in part, by a subtle shift in focus, in the staff report and in Secretary Perry’s cover letter, from concern about reliability to resilience.
“While reliability is important,” the staff report argues, “recent disruptive events such as the Polar Vortex demonstrate the critical need for improved system resilience. Markets are only now beginning to recognize and compensate resilience-enhancing resource attributes, including fuel assurance. More work is needed in order to ensure a resilient grid.”
“We ... need to recognize the relationship between resiliency and the price of energy,” wrote Secretary Perry. “Customers should know that a resilient electric grid does come with a price.”
Implicitly, if not explicitly, this line of reasoning could lead to additional, premium payments for the “baseload” resources Secretary Perry seemingly wants to protect, in part for the “fuel assurance” provided by onsite coal supplies. But the facts do not support a baseload subsidy as the solution for resilience.
Ironically, the Polar Vortex provides a good example of how advanced energy enhances resilience, as well as reliability, in a way that so-called baseload resources do not. When coal piles froze and extreme cold temperatures caused unexpected mechanical failures in power plants, it was wind power and demand response that kept the lights on. During Superstorm Sandy, district energy systems equipped with combined heat and power systems made New York University and Princeton campuses islands of warmth and light during the long blackout in the storm’s wake. The U.S. military is increasingly relying on microgrids with solar power and battery storage to protect their installations against grid failures.
True tests of resilience services
Nonetheless, some of the report’s recommendations, while potentially opening the door to onerous and unnecessary subsidies for uneconomic power plants as reward for their “baseload” qualities, could actually provide ways to prove advanced energy’s superior value for both reliability and resilience. What fuel is more “assured” and located “onsite” and free of supply risk (as well as price risk) than the sun and the wind, especially now that grid operators are able to predict the availability of these resources with great accuracy? What electricity source is more instantly dispatchable in the event of disruption than battery storage? What surer way is there to relieve stress on the grid than demand response?
“Given their track record of responding when other resources fail, advanced energy technologies and services should feature prominently in any fair assessment of cost-effective resilience solutions.”
Advanced Energy Economy
The report calls on DOE, FERC, and the National Electric Reliability Corp. (NERC) to broaden their efforts to plan for and address resilience of the bulk power system. Given their track record of responding when other resources fail, advanced energy technologies and services should feature prominently in any fair assessment of cost-effective resilience solutions.
The report also calls for accurate valuation of essential reliability services (ERS), specifically “by creating fuel-neutral markets and/or regulatory mechanisms that compensate grid participants for services that are necessary to support reliable grid operations.” Advanced energy can improve reliability but the nation’s electricity markets currently do not fully recognize the benefits these technologies provide to the grid. We agree that that should change.
For a truly “fuel-neutral” – we would say, “technology-neutral” – way to value these ERS, what’s needed is to move away from market rules that assume the solution to every electricity challenge is technology dating back to the Eisenhower Administration. The Federal Energy Regulatory Commission (FERC) is already looking to do that, in a rulemaking intended to remove barriers preventing energy storage and aggregated distributed energy resources from competing in wholesale electricity markets. We hope FERC does not stop at storage and aggregated DER, but continues to take down barriers, so that all advanced energy technologies and services are able to compete on price and performance – including new technologies as they emerge.
Expedited permitting for all – not just some
The report also calls for all federal agencies to accelerate and reduce the costs of permitting for coal, nuclear, hydro, and transmission. We agree, but think that the same consideration is due many other advanced energy technologies, which also face daunting permitting timelines and costs. In permitting, as well as wholesale markets, we need a level playing field.
The staff report also recommits DOE to the Trump Administration’s goal of “energy dominance” by “minimizing regulatory barriers to energy production, economic growth and job creation.” That is something we also support. But energy dominance cannot be achieved while carrying the dead weight of old technology from an earlier era. The key to a reliable and resilient grid powering a growing economy and creating jobs is not old energy, but advanced energy.
Arvin Ganesan is vice president for federal policy and Dylan Reed is senior associate for federal and state policy at national business group, Advanced Energy Economy