FERC’s MOPR Decision Bolsters US Energy Security

FERC’s MOPR Decision Bolsters US Energy Security
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“What was apparent during this weather event was the continued reliance on baseload generation,” Bruce Walker, Assistant U.S. Energy Secretary, January 2018, after the Winter Bomb Cyclone

FERC’s recent minimum offer price rule (MOPR) decision was about preserving U.S. energy security and restoring competition to PJM Interconnection’s capacity market. That’s because the purpose of a capacity market is to ensure that customers have adequate generating capacity when required. This centers on a reliable and predictable reserve of electricity that becomes essential when demand spikes or a power plant suddenly goes offline. We often see this happen during a winter polar vortex or a summer heat wave.

Our competitive power markets have been compromised by huge out-of-market payments. The problem has been that subsidies for wind and solar power have eroded fair competition in the marketplace. These are intermittent sources of electricity usually only available some 30% of the time, even on good days. For example, wind has had a federal subsidy that pays farm owners a whopping $23 per megawatt-hour. “Subsidizing The Rich Through California's Solar Scheme.” This hides their true costs and creates a never-ending incentive to generate electricity even when it’s not needed – often causing wind and solar generators to get paid to not generate power instead of glutting the grid.

This has added an unpredictability to the market and pushed many baseload power plants offline in favor of less reliable sources that subsidies have made to look cheaper than they actually are. Many baseload coal units, for instance, have thus been forced to retire prematurely. With months of fuel on-site, coal’s on-demand reliability has proven to boost the resiliency of the grid during our most challenging times: 

FERC’s decision means that any fuel source competing in the capacity auction must bid in at a minimum price. The goal is to help remove the distorting effects of state subsidies and mandates for renewables. Much of the generating capacity reserve for PJM doesn’t bolster its reliability and resilience. The largest renewable power state just demonstrated the path others must avoid: “Texas’ Impending Reliability Issues With Wind Power.” Indeed, utility executives wrote PJM last year to more properly value baseload power plants:

  • “PJM has not taken the proactive steps needed to value resiliency attributes, such as fuel security and fuel diversity, of its generating fleet.”

FERC’s order to help restore a fair competition and resiliency will prove much more valuable than most Americans realize. The U.S. seems to rapidly be heading toward an electricity crisis as more baseload plants come offline. From transport to manufacturing to buildings, the ongoing goal of “100% electrification” could surge U.S. power demand by 60% or more in the coming decades. Thus, increasingly so, U.S. energy security demands that our power markets ensure that the key attributes of reliability and resilience are properly valued to meet such growing needs. Smart people know that renewables need to stand on their own two feet: “Why Bill Gates Thinks It’s Time to End Subsidies for Wind and Solar Power.”

Indeed, as for costs, a major new study from the University of Chicago finds that wind and solar are making electricity prices much more expensive. The team of economists finds that previous studies indicating something different were misleading. That’s because they failed to incorporate three key costs for renewables that too often get ignored: their 1) unreliability, 2) need for large swaths of land, and 3) displacement of cheaper baseload sources like coal. This isn’t a surprise, however, since no state has spent more money incorporating wind and solar than California; yet, the Golden State's power rates are 50% above the national average. 

Jude Clemente is the Editor at RealClearEnergy.

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