Restore Electricity Market Integrity to Ensure Grid Reliability
The integrity of wholesale electricity markets is in jeopardy, and the stakes are enormous. Designed to ensure affordable, reliable and resilient power through competition, these markets are no longer competitive. They have been undone by out-of-market subsidies and years of government picking winners and losers. The result is the replacement of essential baseload power plants that underpin grid reliability with variable energy sources that compromise it.
Renewable portfolio standards, which began as state policies intended to give nascent resources a jumpstart, have become an epidemic. Ever-more ambitious, these mandates have become decisive elements in the marketplace. It’s time to address this market manipulation head on.
The regulators at the Federal Energy Regulatory Commission (FERC) have the perfect vehicle to do just that. The pending PJM Minimum Offer Price Rule (MOPR) – which would scrub subsidized sources of power from PJM’s capacity market – is the right lever to pull to restore fairness to the marketplace. Failure to act would mean the fuel-secure foundation of the grid slips away.
Essential coal plants are being pushed into early retirement by a gamed marketplace incapable of properly valuing their contribution to grid reliability and resilience. While utilities, the U.S. Department of Energy and even regulators have grown increasingly concerned about the loss of this baseload capacity, the warning signs of a reliability tipping point have yet to be met with a decisive course correction. That must change.
A lack of urgency for action to date can largely be chalked up to flawed analysis of the challenge. Far too much study of the loss of baseload capacity, and its implications, has looked backwards when we have already stepped into new territory with no precedent to draw upon. What analysts have failed to understand is that we don’t have a capacity problem but rather a rapidly mounting energy security problem with a market construct incapable of addressing it. Never has the grid and the reliable delivery of power relied so heavily on just-in-time fuel delivery and the whims of mother nature.
The threats to the reliable delivery of fuel and power are more complex and challenging to address than ever before. No miracle of modern society, no corner of industry works without the constant, on-demand delivery of electricity. This moment calls for action, not hand wringing, blind faith or reluctance to pump the breaks. Electric power grid Jenga is just as dangerous as it sounds.
Once these essential baseload power plants are gone, there’s no bringing them back. This crisis is one of our own making but it’s a crisis we have the means to address before the optionality, fuel security and balance of our current fuel mix is lost for good.
Separate action is needed to reshape markets to better value fuel-secure sources of power, but the PJM MOPR could go a long way in immediately alleviating much of the pressure on at-risk baseload power plants in the nation’s largest wholesale electricity market.
FERC is well aware of the disruption caused by state energy mandates and out-of-market payments in wholesale markets. Now is the moment to quarantine this epidemic before it gets far worse.
The urgency for action is not because we’ve already experienced rolling blackouts during a polar vortex or cyber-attack, but because we simply cannot afford to let that happen. We need a robust, balanced and resilient grid. We must have electricity markets that can deliver it. FERC should act now to restore market integrity and stop the loss of essential, fuel-secure baseload capacity.
Rich Nolan is the president and CEO of the National Mining Association.