Bill Squadron, President, OurEnergyPolicy gives an introduction to the Reliability and Resilience within Competitive Markets webinar. OurEnergyPolicy YouTube
On March 1, OurEnergyPolicy, an organization dedicated to driving energy innovation, hosted a webinar as part of its Energy Leaders Webinar Series. EPSA President and CEO Todd Snitchler moderated the panel, which consisted of executives from the Energy Choice Coalition, the Edison Electric Institute (EEI), and C3 Solutions. Liam Baker, Senior Vice President at Eastern Generation LLC, an owner, operator, and manager of electric generation resources in competitive power markets and EPSA member company, provided opening remarks. Panelists discussed some of the key questions and challenges regarding competitive markets facing the power grid today – particularly how restructured markets can continue to deliver reliable electricity and mitigate cost increases as the energy transition poses new challenges. Here are our five takeaways from the conversation.
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1. The restructured – competitive – electricity market benefits the consumer by shifting risks to investors.
Over the past few decades since market restructuring began, competitive markets have facilitated new investment, consumer choice, and cost-effective outcomes while also delivering reliability. In restructured regions, utilities have become providers of last-resort generation, and have to purchase power rather than owning their own generation.
Eastern Generation Senior Vice President Liam Baker outlined a key component of competitive markets. “One of the primary benefits of competitive markets is that these investments … are made at our own risk. Our investors are the ones taking the risk. Ratepayers are not being asked to shoulder [it].” That’s one of the reasons, he added, that the markets have moved away from the traditional vertical structure. The hope, he said, is that state policymakers will continue to rely on and promote markets within their states to achieve clean energy goals and reliable power.
2. Market restructuring is still in progress, and while positive results have already been seen, there is more work to be done.
A common question regarding restructuring is how markets can balance energy reliability and cost-effectiveness with the transition towards clean energy.
Energy Choice Coalition Vice President Robert Dillon pointed out that restructuring is not complete, and there is still room for improvement. “We do need to look at how we deal with affordability,” he said. “Competitive markets allow consumers to really drive the decision making, instead of policymakers … the market is responding to what the consumers want.” That is affordability, he said, and reliability, but he noted that consumers also want cleaner energy, and they want the services that competitive markets provide to make their lives more convenient.
C3 Solutions Vice President of Public Policy Nick Loris reiterated the need for transparency with customers, reminding the audience that competitive markets are designed to pass the risk from the ratepayers to the companies – and allow the best power providers to come to the top.
Along with the benefits, Dillon said, restructured markets shift more responsibility towards the consumers, in terms of their decision making. “The consumer has to be more involved in the decisions. They have to be more involved in searching for prices, and buying their products on an open market.” That’s a learning curve, he acknowledged, but noted that is a reality in any market, whether with voters doing research on who to vote for, or electricity consumers being informed on where to get their generation.
The panelists noted that market restructuring is not complete yet. Texas is currently the only state with a fully restructured market, and there is work yet to be done.
Increasing access to energy supply will also be essential to mitigating consumer costs, panelists agreed, pointing to opportunities from DER and consumer-driven approaches as well as the need for keeping all energy options on the table and the urgency of permitting reform to build necessary infrastructure.
Loris sees the approach needed as “all-of-the-above. It’s going to be a ‘DER-and-‘ situation.”
Emily Fisher, Executive Vice President for Clean Energy at the Edison Electric Institute, concurred, adding that “if we electrify as many things as people think we might electrify, we’ll need all of the things.”
To that point, EPSA President & CEO Todd Snitchler noted, “we’ve adopted the term ‘energy expansion’ – we’re going to need a whole lot more and not less.”
3. Energy investment needs to be opened up to the private sector.
As the energy transition advances, innovators are developing new technologies every day, hydrogen and carbon capture and storage (CCS) among them, to reduce emissions while still providing reliable and cost-effective power. The market is constantly shifting and moving as it makes room for necessary innovation, and the money needs to come from somewhere. But with increased fears regarding the role of cost in both emissions-reduction goals and goals for reliability maintenance, where should the money come from to best benefit both the power supply and the wallet of the consumer?
Dillon pushed for opening investment in these new technologies up to the private sector for increased flexibility. “There is a lot more technology available, a lot more resources available than there were in the past…the definition [of reliability] has really changed,” he said. “It’s hard for very large investor-owned utilities to capture that … they place a bet on one technology, and the market has changed so rapidly that a lot of times they’re betting on the wrong technology.”
Dillon doubts the longevity of the current model of federal and taxpayer dollars funding new technologies.
Instead, Dillon said the competitive, private sector-invested market design allows for “better solutions and more solutions,” and decision makers must settle on that design for a power system that can fit facilities needed for the rapidly advancing energy transition.
“Once we build this system, that’s the system we’re stuck with,” Dillon said. “We’ve got to figure out a system that allows technology to bloom, and that allows innovation to unlock these resources.”
According to Dillon, more choice, more incentivized funding from the private sector, and more competition will unlock these benefits much more than the vertical design with monopoly utilities, where the risk lies with the ratepayer and the choices lie with the utility.
Loris also expressed concern for the federal government’s placement of investment.
“We don’t know what the future generating sources that are the most affordable, reliable, and clean will be,” he said. “The more that the government locks resources in unproductive places with specific tax subsidies to specific energy technologies, it makes it all the more difficult for them to compete in the marketplace.”
A few concrete ways for the industry to mitigate cost? “We need more pipelines, more transmission lines and generally more supply,” Loris stated. “Part of the frustration with the [Inflation Reduction Act] is that by subsidizing all these resources, you’re turning up pressure on a kinked hose. Without permitting reforms to bring resources to customers you’re still in a whole world of hurt in terms of trying to bring down prices through supply side.”
4. Grid resiliency is dependent upon building the system around the reality of each region. Natural gas will still be needed – more in some regions than others – to meet peak demand.
In response to the question of how competitive power providers can take steps to make electricity generation and transmission infrastructure more resilient to climatic events, Dillon emphasized the importance of building a system that “matches the reality of the region.”
Resiliency is built through microgrids, interconnectedness, and real-time energy markets that can source power from different places instead of solely from peaker plants. Fisher acknowledged the ability of natural gas to respond immediately in times of need. “We definitely need gas; it’s a very significant part of our fuel mix right now. If we’re going to use it differently in the future, how do we make sure that the people who are providing the services from those units […] are incentivized to keep those units around? As we switch to a winter peaking system and those peaks get peakier, and we’re going to need that generation really critically but not as often, how are we paying for that?”
Whether the power is coming primarily from new technologies or from the traditional peaker plants, panelists noted that the factors which vary region by region must be taken into account, and the reality is that the infrastructure nationwide is currently built to maintain power sourced from natural gas.
Loris brought up takeaways from the seasonal Reliability Reports from the North American Electric Reliability Corporation. “As we have more renewables coming out of the marketplace, we’re probably going to need more natural gas generation as well,” he said.
5. Transparency is key to a healthy restructured power market.
Throughout the panel, Loris emphasized transparency with ratepayers being paramount to ensuring that the restructured market works to its full potential, giving consumers the agency to make informed decisions without expecting unrealistic amounts of knowledge from them. Transparency and communication are also key in extreme weather events like Winter Storms Uri and Elliot.
“With Winter Storm Elliot in TVA, a lot of people were left in the dark as to what was going on … more planning, regional coordination, and transparency efforts … would help solve some of these challenges.”
A restructured market with competitive power providers and investment coming more from the private sector than from federal funds gives that transparency to and empowers consumers to have more information and control. A competitive market bestows choices, and the region customers live in, with its specific climate, is served accordingly.
While the restructured market system requires a bit more involvement than the loss of control that comes with a vertically integrated system, knowing exactly where their power is coming from, how it is priced, and who is funding it, gives that agency to the customer and can better equip them to weather climatic events, save money, and move towards a lower emission world.
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