In April, Secretary of Energy Perry announced a 60 day study of current U.S. electricity markets with an emphasis on their effects on long term grid reliability, reliance and stability.
That report was issued sometime around 10 pm yesterday.
It’s a lengthy, detailed product backed up with data, charts, customer feedback, and expert input. Here’s a quick look that will be supplemented in later posts.
The staff found that the current market design has successfully produced the result that it was designed to produce – namely they “ensure reliability and minimize the short-term costs of wholesale electricity.”
The report also found that there are additional attributes expected from the electricity production and distribution infrastructure that are not optimized given the signals that the market is capable of producing and the effects of sometimes tangential government actions.
Markets need further study and reform to address future services essential to grid reliability and resilience. 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, 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.
For example, within power systems, it may be the case that a more reliable and resilient system is more costly than the least-cost system that a centrally-organized wholesale market is intended to deliver. Similarly, policies that seek to deliver more jobs, reduce pollution, or reduce risk may require more upfront investment at an initially higher cost to society as a whole than a least-cost system. It is important that policymakers have a clear understanding of the true costs and benefits of services to the grid, as well as an understanding of the tradeoffs between desirable attributes like reliability, flexibility, and affordability.
Though the report acknowledges that the rapid introduction of large increments of near zero marginal cost variable renewable energy capacity has had an impact on the market, the staff placed the majority of the economic shift that has lowered wholesale prices on two factors that have made natural gas fired generators gain market share at the expense of coal and nuclear generators.
Low-cost, abundant natural gas and the development of highly-efficient NGCC plants resulted in a new baseload competitor to the existing coal, nuclear, and hydroelectric plants.
Hydroelectric plants, where available and when properly charged by adequate rainfall, are rarely, if ever, displaced in the economic dispatch selection process. Their very low marginal costs are difficult to beat, their ongoing emissions are non existent, and their operation is often required for non-power reasons anyway.
Against coal and nuclear, when low fuel costs are added to modern, responsive, efficient power plants that extract heat using two complimentary conversion systems – gas turbines followed by steam turbines in a combined cycle (NGCC) plant – the overall competitiveness is formidable.
Natural gas plant total O&M, including fuel, often does not make them fully competitive for around the clock operation at full power compared to most coal and nuclear plants. However, since they can benefit by lowering fuel consumption during periods of rapidly changing grid conditions, they end up displacing some of the output of generators that are designed for steady operation with its steady revenue generation.
The report also pointed to the effects of slack demand growth during the period since the Great Recession. The staff seems to be of the opinion that the link between economic growth and electricity demand growth has been permanently changed and that slow demand growth will continue.
There isn’t anything in the recommended actions that acknowledges the fact that energy intensive businesses may be returning to the U.S. or that there is anything that the electricity business can do to capture market share from other fuels.
Electric vehicles seem to be mentioned only in terms of their potential for load shifting and grid balancing, not as a permanent increment in increased need for electricty production.
More later. Time to go.