WASHINGTON ― Competitive power markets just do decarbonization better, according to Brian George, senior director of strategic policy and government affairs for the Electric Power Supply Association (EPSA), moderating a panel on decarbonization at his organization’s Competitive Power Summit at the National Press Club on Tuesday.

Citing figures from the Energy Choice Coalition, George said that from 2005 to 2021, power sector emissions in regions with organized wholesale electricity markets were down 35% compared to a 27% reduction in regions without such markets. Even deeper cuts were reported in wholesale markets with larger amounts of competitively owned generation, such as ISO-NE, which saw a 61% drop in carbon emissions, George said.

But looking ahead, George and five industry executives on the panel, envisioned power markets combining the reliability benefits of RTOs and ISOs with other market structures aimed at coordinating resources and controlling costs in response to a range of increasingly ambitious state, local and corporate clean energy targets.

ISO-NE CEO Gordon van Welie summarized the challenge organized power markets face, especially if the end goal is President Joe Biden’s 100% decarbonized grid by 2035. “If you’re going to run a system where the bulk of the energy is going to come from the sun and the wind and is inherently unpredictable, you have to have some other energy source that is stable,” van Welie said.

Further complicating the picture, George said, the industry’s focus on reliability is often equated with a resistance to the clean energy transition.

Stephen Gallagher, chief commercial officer for developer Brookfield Renewable U.S., also cited the staggering cost of grid decarbonization. “If you lay out all the plans, both public and private sector, in terms of decarbonization by 2050, that’s $150 trillion of investment — that’s trillion,” he said.

His company has grown from developing solar projects to working with corporate clients to plan and finance their transition to clean power. “That’s going to take time,” Gallagher said. Transitioning the economy to “fully green” is not a one-size-fits-all proposition.

“For us, it’s working with everybody, working with complex growth and goals on budgetary constraints.”

“So, how do we apply markets to all this?” van Welie said. “There are markets that utilize uniform clearing price auctions and marginal pricing, and I think those apply very well to attracting the capital needed for balancing resources, and I think they can be modified to attract renewable energy as well.”

John Moore, director of the Sustainable FERC Project, also favors competitive markets for meeting reliability needs —but combined with some kind of forward clean energy market (FCEM) or centralized market for state, local and corporate mandates.

Capacity markets could evolve to “capability markets,” Moore said, “to address some of the different types of needs we’re going to have with meeting much more than just a traditional peak-load day with different types of resources,” including major amounts of distributed power.

“I think the states are going to have to recognize the value of something like a centralized clean energy market, and you’re going to have to cut the number of products a bit,” he said. “There are so many different clean energy mandates, requirements, and they’re not going to work in any decentralized fashion.”

Echoing other energy industry executives at the summit, Arne Olson, senior partner at Energy + Environmental Economics (E3), said setting a carbon price would be the quickest way to scale clean energy. (See related story, EPSA Members Renew Call for Carbon Price; See Long ‘Bridge’ for Gas.)

While politically unfeasible, a carbon price is “still useful to hold up as a benchmark” for thinking about the next-best alternative, which Olson believes is a bilateral clean energy market.

“We like that better than an organized FCEM because an organized FCEM seems to be defined around one system, one ISO,” Olson said. “There’s no reason that PJM should have a separate price for clean energy attributes, or that ISO-New England should.”

The value of reducing carbon emissions everywhere should not constantly change, he said.

Van Welie agreed that integrating the environmental attributes of different energy sources would be key. “If you don’t put the externalities into the market design, if you don’t take into account the supply-side friction, the markets are not going to work.”

The Four Pillars

Designing these future markets will depend on what van Welie called “four pillars” — increasing amounts of renewables, dramatically expanded transmission, market structures that are generation-technology neutral, and balancing resources for “energy adequacy.”

“When you think about the grid, it’s fairly simple. It’s a collection of wires and a bunch of devices converting energy inputs into electricity,” he said. “If our wholesale market structures and the various regulatory processes we have around the structure don’t give us four pillars of equal strength, something’s going to break down and we’re going to have adverse outcomes.”

A holistic conversation about market evolution is needed, he said. States are primarily focused on clean energy goals, which leaves out transmission and, he said, don’t begin to consider the distribution system.

ISO-NE’s winter peak is now around 20 GW, van Welie said. “The 2050 plan shows it will be close to 60 MW,” and scaling the system up to meet that demand will require “massive amounts of investment in the transmission system.”

ISO-NE’s recent Pathways Study found that existing market structures — the status quo — are “by far the most expensive and the most inefficient” for decarbonizing the grid, van Welie said. One example: “We end up having more storage deployed in order to allow renewables to capture various clean energy attributes,” he said.

Carbon pricing was identified as the most efficient path to decarbonization. (See Draft Study Weighs Tradeoffs of CO2 Pricing, FCEM for ISO-NE.) While a regional or national carbon market is not on the table politically, van Welie’s next-best “is to put [carbon pricing] into the ISO markets, and we’re going to need to have the states tell us what number [of emissions reduction] they want.”

Education, Cooperation, Regulatory Certainty

Looking at the obstacles ahead, panelists raised several issues.

As a developer, Gallagher’s top concern was regulatory certainty. Developers are renegotiating contracts, and in some cases, customers are walking away from projects, he said.

“Not all customers are created equal. Some are very sophisticated, some are not, and they can get scared away with some of the complexity,” he said. “What they need is assurance on executions, so they are willing to pay a premium to make sure” projects are completed, and “right now, that’s not happening.”

Echoing other executives at the summit, Jill Davies, senior vice president of energy trading at Shell Energy Americas, stressed the critical role natural gas will play in the energy transition, providing reliability to markets.

At the same time, she said, “There’s still a lot we can do even to lower emissions across the value chain,” like co-locating solar and storage or carbon capture and natural gas plants.

But Davies also called for “innovation and technology to step in to help us do a better job of forecasting. The role of planning is going to be critical going forward to understand how cities will grow. Where will load be? How will we stress test our systems for climate change … with energy demands that we’ve seen in the U.S. extreme weather events?”

Still another obstacle is the lack of understanding — by regulators, policy makers and the general public — of the complexity and scope of the challenge ahead, and how long the clean energy transition will take, Davies said.

With the accelerating pace of coal plant retirements, people need to realize “it’s not a one-for-one transfer,” she said. “If you retire a coal plant or a gas power generation plant, you just can’t replace it with one solar farm. You need orders of magnitude [of] greater megawatts, and you also need geographic diversification.”

Those pushing for urgent, ambitious clean energy targets also must recognize “that people are not willing to compromise,” she said. “Often times, they don’t want pipelines built where they live; they don’t want to look out their windows and see wind farms.”

Moore agreed with the need for public education. He and other industry insiders “are stunned on a daily basis over the real incomplete level of understanding that policy makers, regulators, legislators all have about how the grid works, and what the implications are for having made at a state level, for example, serious climate commitments in lots of respects, and then not knowing what that ultimately means for consumers and the environment.”

Both he and Davies also called for more cooperation between states and ISOs and RTOs. As more renewables come on the grid, the power a state uses may increasingly come from outside its boundaries, Moore said. States will have to work together, “simplifying products, simplifying the number of local mandates, looking to markets to be more of a resource,” he said. “That’s got to change.”