A new report from the American Council on Renewable Energy argues that industry needs to rethink the concept of resource adequacy to get more renewable energy online and decarbonize the U.S. electric power sector by President Biden’s target of 2035.

Creating a level playing field for renewables in capacity markets is one of several recommendations in the report, released Nov. 23 and a joint effort of ACORE, the American Clean Power Association (ACP) and the Solar Energy Industries Association.

“Capacity is not technically a reliability need,” author Rob Gramlich, president of Grid Strategies, said during a webinar launching the report. “What you want is performance at the time and place you need it. It’s getting increasingly hard to rely on a single construct of capacity when there might be multiple products that you actually need.”

The report intends to provide a counternarrative to industry views that inextricably link capacity and reliability to firm, dispatchable power, traditionally provided by fossil fuels.

“Achieving a net-zero emissions grid by 2035 will require a major shift in the resource mix and a reassessment of grid operations and market design to ensure clean power is reliably delivered to consumers,” ACP CEO Heather Zichal said in an ACORE press release announcing the report.

Sean Gallagher, SEIA’s vice president of state and regulatory affairs, called solar and storage “some of the most predictable technologies on the grid.” Following the report’s recommendations could, he said, “unlock new market opportunities for clean energy resources while improving reliability and resilience.”

But even with FERC Order 2222, the 2020 ruling that opened wholesale power markets to aggregated distributed energy resources, longstanding industry biases remain, Gramlich said.

For example, the report notes that “correlated outage risk is now being widely applied to renewable energy sources but not to fossil resources.” While effective load-carrying capability — a prediction of how much power any one resource will be able to deliver at times of high demand — is a metric widely applied to wind and solar, it was originally developed for fossil fuel generation and thus should be applied to all technologies, the report says.

Capacity valuation should also take into account “portfolio effects,” such as the flexibility and backup power available from solar and storage, the report says.

“It’s important to make sure the rules are right,” Gramlich said. “First of all, to achieve reliability; second, to make sure consumers are paying a fair price and not excessive prices, but then also to avoid the situation where resource adequacy regimes are effectively a way to subsidize nonrenewable, nonclean resources in a way that sort of crowds out the clean and renewable sources from the market.”

Michelle Gardner, NextEra Energy’s senior director of regulatory affairs for the Northeast, pointed to ISO-NE’s capacity market as having “a lot of disadvantages for seasonal resources. It’s not dynamic. I don’t think it supports a changing resource mix as we look across summer and winter periods; as we look across the day, and new technologies.”

One of four industry panelists speaking at the webinar, Gardner also questioned whether three-year forward capacity markets — based on “assumed development cycles for gas turbines” — will provide “the right timing going forward.

The industry is often reacting to “the crisis of the moment,” she said. “We don’t often take the time to really step back and say, ‘Is this the right market? What is the product we’re purchasing? Can we define this? Does it still make sense?’”

Seasonal, Granular, Regional

Along with current high energy prices, the 2020 rolling blackouts in California and last February’s unprecedented winter storm and resulting power outages in Texas and the Midwest have intensified the urgency of the power industry’s current discussions on resource adequacy and, by extension, grid planning. Federal and state regulators, utilities, RTOs and ISOs, investors and other stakeholders each have different and sometimes conflicting concerns, and the report acknowledges solutions will likely be regionalized, based on specific market structures that, it says, are not likely to change.

For example, the report recommends ensuring FERC does not have jurisdiction over markets for environmental attributes, invoking the commission’s recent experience extending PJM’s minimum offer price rule (MOPR) to state-subsidized resources. The rule was rolled back in October, but it could have undone state clean energy policies, the report says.

The report cautions that votes on the MOPR fell along party lines, and the balance of power on the commission could easily change if power also shifts in Congress or the White House.

For RTOs and ISOs with capacity markets, the report recommends a more seasonal and “granular” approach to capacity, and a move toward greater reliance on energy and ancillary services markets.

“Seasonal capacity products are incredibly important, especially for offshore wind, where we have significant capacity in the dead of winter, when other renewables are generally not performing well,” said Eric Wilkinson, electric policy market director for Ørsted Offshore North America.

Energy markets also tend to give developers “better information and that allows us to better value the generation … we are building,” said John Brodbeck, senior manager of transmission for EDP Renewables. Better information and valuation also mean “we are likely to make the appropriate investments and convince our investors to do the right thing and give us money to build,” he said.

For states with vertically integrated, “balkanized” utilities, the report pushes for regionalization — similar to the West’s Energy Imbalance Market and, now, the Southeast Energy Exchange Market.

The report’s other recommendations range from a call for competitive procurement for new generation — widely supported by renewable developers and trade groups — to improved preparation for extreme weather events through regional “stress testing” that goes beyond basic resource adequacy.

Along the same lines, new metrics for capacity and reliability will also be needed, Gramlich said. “There probably isn’t a single new future metric,” he said. “There will certainly need to be more focus on all hours of the year, not just the single, peak summer hour. We can find system stress conditions in any season now, depending on generation outages and weather patterns.”

Resistance to Change

While most panelists voiced broad support for the report’s recommendations, Goldman Sachs Vice President Harry Singh had questions about one suggestion: creating buyers with creditworthiness to procure power through long-term contracts that developers need to secure low-cost financing for their projects.

Gramlich said that in many of the states with competitive, restructured power markets, retail providers are not required to be creditworthy and, therefore, may not be able to enter into long-term contracts that can ensure both reliability and low costs for consumers.

Singh did not see an immediate need for any regulatory requirement for such accountability, such as setting up state-level authorities to ensure creditworthiness, even in states with competitive retail markets. The U.S. already has “a very active marketplace of energy contracts,” he said. “You have utility [power purchase agreements]; in parts of the country, you have corporate PPAs, which inherently include environmental attributes, and that’s a very big part of the contracting for clean energy resources today.”

Such contracts can and, especially in the utility sector, already do encompass capacity, Singh said, and contracts are themselves evolving, as the industry looks at new market designs and transaction structures for renewables.

Brodbeck also interjected one subject omitted in the report: interconnection, and the hundreds of gigawatts of renewable projects sitting in queues across the country. “We can have all sorts of desires to reform and rebuild the system, but until we can get something like a smooth interconnection process in any of the RTOs, we’re living in a fantasy,” he said.

Still another core issue the report does not address is how to motivate an industry that recognizes the need for change but remains highly resistant to external recommendations.

Simply put, said NextEra’s Gardner, “there tends to be huge resistance to being told what to do. Each of the RTOs kind of likes their own playground.”

What is needed instead, she said, is a resetting of priorities and “thinking a lot bigger than what each region is dealing with, whatever crisis they’ve created at the moment.”

“Going forward, we may be better off keeping resource adequacy as kind of a peak [demand] product and looking to improve ancillary and reliability products,” Gardner said.

Brodbeck also stressed the role of stakeholders in RTO decision-making and resistance to learning new ways to address resource adequacy.

“Every stakeholder has a different set of goals, and there are many stakeholders whose main goal is to reduce costs,” he said. “They don’t like the idea of building additional transmission … and that all goes against a fast and smooth transition” to clean energy.

Ørsted’s Wilkinson sees an incremental process going forward. Capacity markets may not be a primary revenue stream for renewables, he said, but will still provide significant value for technologies, such as offshore wind, which require high, upfront capital expenditures.

“The good thing is, as grid operators become more knowledgeable and gain experience operating a grid that has a lot of renewables on it, we can take steps in the future to adjust how capacity is valued and exactly who gets credit for what capacity and when.”