Does the latest push for extra payments to coal and nuclear electric generators really reflect a problem with the grid, or is it a “solution” to the “problem” of cheap electricity?
Two weeks ago the Federal Energy Regulatory Commission (FERC) was given a tight, 60-day timeline to act “before the winter heating season begins so as to prevent the potential failure of the grid from the loss of fuel-secure generation.”
Yet in June, FERC heard testimony from the leading experts on grid reliability that “the state of reliability in North America remains strong, and the trend line shows continuing improvement year over year.”
Some claim it’s a problem when older, uneconomic units are retiring, where market competition determines the generation mix.
Not surprisingly, those generation sources would like us to believe that there’s a risk to the grid’s ability to keep our lights on – even though experts have repeatedly testified to the contrary.
But this week, FERC’s own staff said this winter will likely bring few major risks to energy markets, with predicted warm weather moderating the demand for fuel and electricity.
A panel of six regional grid operators, who are regulated by FERC, testified on Thursday that they are ready for the winter and anticipate no significant problems.
And eight former FERC Commissioners filed a letter with the commission the same day, stating that:
“[S]ubsidizing resources so they do not retire would fundamentally distort markets. The subsidized resources would inevitably drive out the unsubsidized resources, and the subsidies would inevitably raise prices to customers…investor confidence would evaporate and markets would tend to collapse. This loss of faith in markets would thereby undermine reliability.”
Elizabeth Moler, a former FERC Chair, former Deputy Energy Secretary and former Exelon executive, called the proposed rule “a tax in different clothing.”
It’s true that market forces are driving retirements of old uneconomic sources. But markets are also lowering electricity prices and improving system-wide benefits.
The PJM Interconnection, which manages the grid across 13 states and the District of Columbia and is among the largest grid operators in the world, has documented $2.8 billion to $3.1 billion in annual savings from its regional grid and market operations. That includes managing how the transmission system moves power, improving reliability. Markets work.
Are low electricity prices really a “problem” that should be solved?
And would giving coal and nuclear plants extra payments because their fuel is “on-site” really do anything for grid reliability or resilience?
Data and analysis by the Rhodium Group suggest otherwise. First, they show fuel supply problems account for 0.0007% of disruptions to electric reliability over the last 5 years, based on DOE data.
This accounted for 2,815 customer-hours of disruptions – equal to a few hundred people losing power for a few hours.
Interestingly, 2,333 of those 2,815 customer-hours of fuel supply interruption were associated with a single failure at a coal plant in northern Minnesota, reinforcing that on-site fuel is not a remedy for fuel supply security.
As Rhodium explains, DOE’s proposal “needlessly distracts attention and resources from these other more impactful efforts” – like investing in improved transmission infrastructure.
The proposal before FERC would undermine competitive markets now saving consumers tens of billions of dollars. True advances will best be delivered by a technology-neutral market for grid services. With fair market rules, low-priced wind energy can do much more for grid reliability and resilience.
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