On March 21, 2023, the Electric Power Supply Association hosted a day of expert panels and featured three fireside chats with competitive power industry leaders discussing the importance of competitive energy markets, the policies that are determining their investments, and how the transition to reduced carbon intensive energy relies on natural gas to bring more renewable capacity online. EPSA President & CEO Todd Snitchler sat down with:
- Carolyn Comer, President of Shell Energy North America and SVP of Shell Energy Americas
- Thad Hill, President and CEO of Calpine
- Nathan Hanson, President of Power Generation for LS Power
Market Success Needed to Drive Investment
Clear market dynamics are needed to keep steady investments flowing into the energy sector that drive down emissions and prices. The return on new infrastructure like wind or carbon capture isn’t paying dividends back in 18 months according to speakers, and it’s unfair to expect capital to go to a place that might not have the same conditions once those resources are built. Between interested companies, NGOs, and established policy goals, there are more cooks in the kitchen than before, each with their own preferred policy to reach outlined goals.
However, Calpine’s Thad Hill is optimistic that despite differences, every market is moving forward in a parallel way, subject to their own politics and regional microeconomic differences based on geographics and natural resources. To this point, all participants stressed that the rules of the road in these distinct regions need to be clear to keep them investing in the transition, prices low, and consumers’ decarbonization goals on track. Nate Hanson with LS Power laid out a common thread between all three fireside chats when he said, “We are open to having the RTOs saying this is what we want or need and let us respond… We’re at the crossroads of not getting clear instructions of what the grid operators need now.”
That doesn’t mean conditions across PJM, the New England ISO, the California ISO, ERCOT, and others will be the same as they all face different challenges. But scaling to meet those markets’ decarbonization goals requires an investment atmosphere that ensures a return for market participants. And there are new industrial consumers relying on steady investment to reach their established commitments. According to Shell’s Carolyn Comer, large industrial consumers that weren’t thinking about the carbon intensity of their energy five years ago are now reaching out to work with energy suppliers in order to meet newly established decarbonization goals.
Shell has seen other markets use intervention tactics that create uncertainty and cause investors to pull back, pause, or divert that capital elsewhere. As Comer points out, the United States has a better investing market than others because of its use of incentivizing carrots instead of punishing sticks that are driving investments towards less carbon intensive resources. But if energy policy and regulation is determined by the length of a political term, it becomes harder to make those 10- to 30-year investments, which is not conducive to the energy transition, prices, or meeting new demand.
From Energy Transition to Energy Expansion
Although Calpine, Shell, and LS Power all recognized that the energy transition is underway and all are interested in decarbonizing, each saw the continued role for natural gas to provide firm energy capacity. EPSA President and CEO Todd Snitchler noted that the process should be more of an energy expansion than a transition, to which all participants agreed. Comer remarked that “You need all the firm dispatchable capacity you can get in order to support your renewable build-out.” Hanson took issue with the commonly voiced renewables versus fossil narrative, stating, “We want to lower the carbon intensity of our energy supply. That will take time to do in a responsible manner, especially if we can do it reliably. The more we can bring the practical reality to the discussion, the more it will benefit all of us.”
In Hill’s words, “The physics of the grid system have caught up,” and policymakers are becoming more aware of the increasing need for firm energy capacity as increased electrification means additional capacity needs. Successive reliability issues have made reliability concerns more pronounced, especially as the North American Electric Reliability Corporation’s 2023 Summer Assessment rings alarm bells for the reliability of two-thirds of America’s energy grid.
The question on each speaker’s mind was how the market was going to compensate these firm capacity natural gas resources when heavy subsidies to other energy resources and other market conditions are making it harder to keep capacity around. Without the market rules in place to compensate existing assets on the grid today, more will retire prematurely. Variable energy resources come with supply gaps, and the interconnected market has to have a holistic approach to restore the confidence of capital to keep firm capacity investments on the grid to bridge those gaps.
If policymakers can’t support the natural gas resources needed in the market to reliably provide the services customers need, then the market is not constructed correctly.
A Foundation for Long Term Certainty
All speakers featured in the Competitive Power Summit’s Fireside Chats outlined how clear market dynamics were necessary for the competitive market’s continued ability to reliably provide affordable and low carbon energy resources. Those dynamics cannot favor one resource over the other without threatening reliability, and each participant agreed that natural gas is necessary to support the increased share of renewable deployment.
The physics of the grid have to be balanced with approaches that keep firm capacity online, while continuing to support renewables. And while market regulators are now understanding this requirement, after years of market intervention has reduced reliability to an all-time low, participants are optimistic that fair and balanced policies prioritizing reliability can resolve the issue. As long as the regulatory and market foundation is durable and enables competitive suppliers to assess a long-term risk-reward equation, EPSA member companies will bring new resources onto the grid.
