The advantaged economics of natural gas-fired power generation is the biggest contributor to coal and nuclear plant retirements in the US, while growth in renewables is down the list in the much-awaited, and somewhat feared, DOE grid study.
Low growth in electricity demand is another factor that helped make older, higher-cost power capacity redundant. Baseload plant economics have also been hurt by the rise in use of variable renewable energy (VRE) resources and by certain environmental regulations, says the study ordered by Energy Secretary Rick Perry.
Perry called in April the study into critical issues for the long-term reliability of the electric grid, including an analysis of "market-distorting effects of federal subsidies that boost one form of energy at the expense of others". The worry at the time was that the study could be based on “a faulty premise” that renewables have a negative impact on grid reliability, but the report from yesterday takes a different direction.
The 187-page report presents an overview of the current conditions on the energy market and offers recommendations for future action. These include the development of regulatory mechanisms that compensate grid participants (such as baseload generators) for services supporting reliable grid operations, and research and development into grid reliability and resilience tools. It also calls for minimising of regulatory barriers to energy production, including from nuclear and coal power plants, among other recommendations.
“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.”
The study mentions that in certain cases a more reliable and resilient power system is more costly than the least-cost system that a centrally-organised wholesale market is intended to deliver. Improvements of energy price formation in centrally-organised wholesale electricity markets is needed, according to the report.
“Market designs may be inadequate given potential future challenges. VRE—with near-zero marginal costs and if at high penetrations—will lower wholesale energy prices independent of effects of the current low natural gas prices. This would put additional economic pressure on revenues for traditional baseload (as well as non-baseload) resources, requiring careful consideration of continued market evolutions.”
Graham Richard, CEO of Advanced Energy Economy (AEE), says that the report “seriously overstates the challenges associated with new energy resources. It also implies that certain power plants now losing out in the marketplace make an irreplaceable contribution to reliability and resilience, which is not the case.”
“What is happening in our power grid is a natural process of technology progress and market competition,” said Richard. He believes that that process should be allowed to continue and not be distorted by the Trump Administration’s preference for ‘baseload’ generation.
The full report is available at https://energy.gov/sites/prod/files/2017/08/f36/Staff%20Report%20on%20Electricity%20Markets%20and%20Reliability_0.pdf.
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Author: Andrew.
