AUSTIN, Texas — Greentech Media’s inaugural U.S. Power & Renewables Summit drew an international crowd of energy sector participants to hear from industry leaders and experts. Panel discussions and one-on-one interviews focused on renewable energy’s effects on the power markets, the disruptors of today’s markets, navigating uncertainty and building a new energy future.
DOE Report Author: Identify, Pay for Resiliency Services
Energy consultant Alison Silverstein, who drafted the technical portions of the Department of Energy’s “Staff Report on Electricity Markets and Reliability,” took no credit for the department’s Notice of Proposed Rulemaking asking FERC to prop up baseload coal and nuclear generators in competitive markets (RM18-1).
“The fact of the matter is, what we see in the DOE NOPR has no justification in the staff report, except for a few cherry-picked items that politicos wrote into the report,” said Silverstein, who readily admits she is “not a big fan” of capacity markets. “There’s a direct line from the old capacity markets to the NOPR. We ought to think what resiliency services are, and pay for that. We need to be very specific, and very clear, as to the value of what things matter for effective grid operations … and we need to pay for every one of them.”
Saying that the energy markets are not facing a market problem, but a “glut,” Silverstein said the “best cure for over-capacity is retirements.”
“If we can clear out some of the inefficient plants sucking away money, we can see whether it’s a price-formation problem or too many plants lowering the revenue share for everyone,” she said. “The reason so many coal and nuclear plants are retiring — and they should be — is not renewables and it’s not regulations. They are old plants. They’ve done their job, they’ve made money, they’ve paid their dues, and it’s time for them to move on. It’s not a tragedy for the market as a whole; it’s a transition. It’s what should happen, enabling a more nimble market to occur.”
Speaking on the same panel, Keith Collins, executive director of SPP’s Market Monitoring Unit, said the lack of retirements in the face of “tremendous growth” in wind energy and other renewables, has led to complaints from generating resources not having sufficient revenues and thermal resources self-committing outside the market.
“All these pressures are causing prices to be distorted,” he said. “We’re looking for solutions to keep resources around, when the signals are saying we don’t need these resources.”
Collins called for further developments to find value in ramping products, as he said CAISO and MISO are currently doing.
“When you think of the LMP, it takes into account the spatial elements of congestion. Ramp is the time element,” Collins said. “Even today, if you look at the five-minute prices, you see signals being sent. A ramping product can better capture that value, and do it in a technologically neutral way.”
“We’re trying to make the market mechanics work harder than they should be,” Silverstein said, agreeing with Collins. “We’re trying to pile way too much into energy prices. If we want ramping, by God, let’s have ramping. If we want cycling, by God, let’s have cycling — but let’s pay for it. Let’s stop trying to make the energy price so complicated. We should be saying, ‘These are the 10 products we need. For these five, you must be able to deliver them in return for being interconnected to the market.’”
Bay Says ‘Healthy’ Reserve Margins Disprove DOE’s NOPR
When a former FERC chairman appears at a conference amid a proposed rulemaking, naturally he will be asked his opinion.
Norman Bay, who resigned from FERC in February after the Trump administration replaced him with Commissioner Cheryl LaFleur, did not hold back. He made it clear he doesn’t believe the grid is facing a reliability threat and said the commission could be taking a legal risk in propping up coal and nuclear baseload plants.
“That’s the problem … the [DOE] recommendation does not support the problem,” Bay said. He made a note of the generally positive RTO/ISO winter assessment reports made during FERC’s October open meeting. (See New England, SoCal Gas Supplies Top FERC Winter Concerns.)
“The reserve margins are healthy across the U.S. In some of markets and ISOs, the reserve margins are well above what they need to be,” Bay said. “A reasonable argument could be made that there’s not too little capacity, but too much, which is suppressing revenues for other resources in the markets. The DOE’s own study said system reliability was adequate. The month before, NERC said reliability was strong.
“Where’s the record of support for this proposal, and how do you get to 90 days of supply?” he asked. “I think there’s a real legal risk for FERC to adopt the rulemaking in its current format. How does FERC deal with the discrimination against resources? FERC has prudently in the past been revenue-neutral, and not picking winners and losers in the marketplace.”
Bay said the NOPR could wind up being rolled into the commission’s examination on the effect of state policies on wholesale markets and price formation.
“There are some measures FERC could adopt that would be constructive,” he said, referring to proposed rulemakings on uplift allocation and fast-start resources. “This amounts to no-regret measures.”
Vistra Energy Exec Responds to Recent News
Anthony Maselli, vice president of development and strategy for Vistra Energy, addressed recent events involving his company: the announced $1.7 billion acquisition of Dynegy and the closure of three coal plants with about 4 GW of capacity. (See ERCOT OKs Luminant Coal Retirements.)
“The Dynegy situation is working out. It will be months and months before closing,” he said. Dynegy’s assets mean Vistra’s portfolio would now be participating in five markets (CAISO, ERCOT, MISO, PJM and SPP) instead of just Texas, Maselli noted.
“It will be dramatic change,” he said.
Maselli saw less drama in the retirements. “While retirements are something we had to announce, they’re not the end all, be all. I don’t think the world is cratering around a 1,500-MW reduction retirement,” he said, referring to ERCOT’s recent approval of two smaller coal plants.
The Texas grid has had record-low prices the last two years, and with ample resources to handle the latest retirements, the effect on prices could be relatively minimal.
“There hasn’t been significant scarcity pricing in the last six years. I’m very hopeful that after all the market reform we’ve endured since the unforgettable summer of 2011, that this summer will be a good dress rehearsal for scarcity pricing,” said Shell Energy’s Greg Thurnher.
“The most recent retirements moved the needle with respect to forwards, which I think was a very natural market response,” he said. “We have some faith that ERCOT will remove impediments from a transmission perspective, to make every megawatt deliverable from an economic perspective. If forwards are indicative of the price volatility we can anticipate next summer, then those who have fast and flexible resources will be tremendously rewarded.”
AEP Sees a Bright Future with Wind, Solar Energy
American Electric Power Executive Vice President Charles Patton recalled when his company merged with Central and South West in 2000, it resulted in the “largest coal burner in the Western Hemisphere,” with a fuel mix consisting of 90% coal.
Fast forward to today, when coal accounts for 47% of AEP’s fuel capacity and renewables make up 13%. The Ohio-based company has announced a $4.5 billion wind farm project in the Oklahoma Panhandle, and said during its most recent earnings call that it plans to add 8.4 GW of wind and solar by 2030.
“I will confess, there was a time I did not believe I would have publicly stated that you would be able to interject or intermingle renewables to the extent we’ve been able to,” said Patton, who is responsible for the corporation’s external affairs. “If you were a utility guy, that wasn’t something that you necessarily believed would be possible to the degree it is today. We see even more possibilities as we move toward the future, but you still have to get the regulators on board.”
Patton recalled when the renewable industry would intervene in AEP rate cases and ask the company to move faster.
“The reality is, when you’re a regulated utility, you’re not the one calling the shots,” he said.
Patton said AEP realizes the future of its remaining coal plants is “limited,” even after “we spent more money making them compliant with EPA standards than it took to build them in the first place.” Many of AEP’s units are scheduled to retire around 2040, he said.
And in their place?
“Everything we look at tells us wind and solar are good,” Patton said, referring to their prices. “They’re very good with [tax credits], they’re good without. With or without the tax credits, we see wind and solar in our future. We can put that $4.5 billion project into rate base and actually lower customer rates, because of the [credits].”
Actions in DC Creating Problems for Renewables
Participating on a panel discussing changing market fundamentals, Amy Francetic, senior vice president with generation and energy storage developer Invenergy, said a House Republican tax bill that would cut the wind production tax credit by more than a third only adds to instability in the market. (See GOP Tax Bill Would Trim PTC, Drop Credit for EVs.)
“The wind and solar industries had a deal that’s been agreed upon,” Francetic said. “We agreed upon a phaseout. The industry has spent the last year, meeting all the leaders in Congress. ‘Don’t worry, we had a deal. We won’t change it.’ Then lo and behold, the tax plan had a reduction in the PTC. … It sends a message to the industry and halts financing. There’s really no good reason for it.”
All is not lost, Francetic said, pointing to continued technological advances.
“What we have going for us is that physics is on our side. The physics of the equipment area is producing cheaper and cheaper prices. [The advancements] are not going to stop.”
Todd Glass, a partner with the California-based Wilson Sonsini Goodrich & Rosati law firm, agreed with Francetic, saying what is happening in D.C. isn’t helping the industry.
“We continue to design markets that allow for competition, price signals and innovation,” he said. “The deregulation craze that’s going on in the EPA is doing more damage in the long run than anything else.”
Besides, the markets are working, said Thomas McAndrew, a founder of Texas distributed energy provider Enchanted Rock. As evidence, he pointed to the Vistra plant retirements.
“ERCOT is shifting from the old model to the new model,” he said.
The Digital Grid of the Future
A panel of “out-of-the-box” thinkers took on how best to integrate renewables in a regulated industry that moves slower than the world around it.
“The entire structure enables the incumbents,” said Kerinia Cusick, cofounder of the Center for Renewables Integration. “At the same time, they’re hampered by a regulatory structure that requires them to go through a two-to-three process to approve any changes they want to make. But the technology’s already moved on. It’s already changed.
“It makes it hard to work in that environment. Our entire structure is one of who’s got the money to lobby, who’s on all these boards of directors and governance. A lot of the incumbents have been fat and happy, but they’re not so fat and happy right now.”
Sanjeev Addala, GE Renewable Energy’s chief digital officer, said renewable energy itself is “ripe for transformation.”
“We’re creating an economic digital system for the new industry,” Addala said. “How do we collect all the data and apply analytics to improve their performance? Next-level artificial intelligence is putting the computing resource at the wind-farm level, so you understand the forecast and the analytics right at the edge.
“In the future, the grid is going to become very autonomous,” he predicted. “Wind farms could become a self-loading system, with everything talking to each other.”
“I’ve heard all this hype about smart homes, but I wonder when the solar system on my roof will be smart enough to communicate with my home system,” said the Environmental Defense Fund’s Lenae Shirley. “That way, when a cloud passes over, I will be able to keep my demand flat. That’s why digitization is so important.
