Wholesale Power Markets

Leading US Clean Energy Think Tanks Agree: Wholesale Power Market Reforms Are Needed

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Of the many significant accomplishments by the U.S. wind and solar energy industries over the past decade, perhaps none are more important than the technological advances that enabled the two sectors to become the lowest-cost new electricity option in nearly half the country.

See the below map from the University of Texas at Austin Energy Institute, highlighting the cheapest technology by geographic region, where green = utility-scale wind, purple = utility-scale solar PV.

In many cases, new wind and solar projects are now built for less than the cost of operating existing fossil-fired power plants – a trend that will only increase throughout the 2020s.[1] But despite the positive economic trends, major regulatory obstacles remain which are slowing down the pace of clean energy deployment. Many of those barriers exist in the nation’s centralized wholesale power markets, which account for two-thirds of the electricity in America.[2]

Energy Innovation’s (EI) June 2019 report Wholesale Electricity Market Design for Rapid Decarbonization summarizes this problem. The report explains how many of these constraints result from systems designed with a centralized-resource paradigm. In other words, today’s market structures are still predominately based on the needs of the conventional thermal resources, such as coal and nuclear energy, which dominated markets throughout the 20th century. These market rules are now at odds with new types of low-cost, flexible resources entering the system, namely wind power and solar power, and increasingly, battery storage. EI also suggests that wholesale electricity markets will need to fundamentally change and modernize to increase the penetration of renewable resources and ultimately support decarbonized electricity systems.

The paper provides ten principles to ensure renewable technologies can more successfully be added to the grid, some of which are complementary to the reforms recommended in our November 2018 report, Customer Focused and Clean: Power Markets for the Future. For example, EI suggests that wholesale electricity markets should support grid reliability in a manner where incremental costs do not exceed incremental benefits. We agree, and believe that to achieve that goal wholesale markets need to be flexible, fair, far, and free, as described in greater detail in our report. EI also suggests using emerging technologies to manage reliability and congestion. Our report similarly recommends that grid operators should aggressively use advanced grid technologies such as power flow control, ambient temperature-based thermal ratings, and dynamic stability limits for transmission lines to reduce congestion. EI also calls for the facilitation of demand side-participation. In our paper, we recommend allowing real-time prices and demand response aggregation for electricity customers and allowing demand resources to set prices.

Similarly, in the fall of 2019, The Rocky Mountain Institute issued a new report identifying seven key components of the global energy system where greenhouse gas emission reduction solutions are available, but not yet fully utilized. Of these sections, “electrifying with renewables” highlights the challenges and opportunities in the U.S. power sector. Despite the effectiveness of state Renewable Portfolio Standards (RPSs) in creating demand for renewable generation, those policies alone are not enough, as wholesale markets must also change to better incorporate the capabilities of these flexible resources as we begin reaching the levels of penetration required to mitigate climate change. The RMI report offers some additional market-based interventions that could compliment state policies and ultimately assist in incorporating increasing amounts of renewable energy on our nation’s grid. According to the RMI, policymakers and regulators can work to further increase the share of renewables by ensuring competitive electricity markets and exposing all resources to market-based competition. We agree with the concept, particularly the idea of bringing self-scheduled resources into markets. Studies have shown that utilities self-scheduling conventional generation has cost consumers over a billion dollars a year in increased utility bills.[3]

RMI further recommends improving system flexibility and resilience by allowing all-source bidding to provide flexibility resources. WSA also agrees with the importance of creating additional flexibility products, as different resource configurations and load characteristics may require different speeds and durations of ramping. This would allow fast-acting but duration-limited resources, like renewable resources and some storage resources, to provide all the services they can contribute.

The Wind Solar Alliance (WSA) is a 501(c)(3) nonprofit organization dedicated to accelerating the transition to renewable energy as a means of strengthening the U.S. economy and reducing the environmental impacts of our energy use. WSA works in collaboration with the American Wind Energy Association and the Solar Energy Industries Association to provide regulators and other key decisionmakers the information they need to ensure that wholesale electricity markets maximize the capabilities of wind, solar, and battery storage on our nation’s electrical grid.

[1] Energy Innovation, https://energyinnovation.org/wp-content/uploads/2019/04/Coal-Cost-Crossover_Energy-Innovation_VCE_FINAL2.pdf

[2] Customer Focused and Clean: Power Markets for the Future, https://windsolaralliance.org/wp-content/uploads/2018/11/WSA_Market_Reform_report_online.pdf.

[3] Joe Daniel, Self-Scheduling: How Inflexible Coal is Breaking Energy Markets, available at, https://blog.ucsusa.org/joseph-daniel/inflexible-coal-breaking-energy-markets.

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