On March 29, the Electric Power Supply Association hosted its first Competitive Power Summit in Washington, DC. Leaders from across the competitive power market discussed the key issues facing the sector, including maintaining reliability as the grid changes, market innovations, advancing decarbonization, ensuring a just transition with continued customer and economic benefits, and future market design. While there was much to debate around these topics, many speakers agreed on the basic tenets of what’s necessary to achieve reliable, affordable, and clean power.
This is the third installment of a six-part blog series on the themes and key takeaways from EPSA’s Competitive Power Summit, which will highlight how the deployment of innovative technologies and policies will continue to shape competitive markets.
In case you missed it:
Innovation in Competitive Markets
“One of the market signals we are seeing, which isn’t positive, is the tenor for certainty and stability is becoming shorter and shorter. And that’s a signal most investors do not want to see. On the positive side, we are continuing to see customers pursue their ESG goals, and that is continuing to drive competition in the renewable sector,” said Kevin Smith, president, Tenaska Power Services Co.
With the accelerating rate of change the power grid is facing, new innovations will be required to ensure reliability and affordability while reducing emissions. Attracting capital investment to enable innovations to make it to the market will be essential, panelists agreed. Investors are increasingly looking to back ESG investments in the energy sector, but additional clarity on what counts as an ESG project will be needed so investors can make informed decisions. The state-to-state patchwork of incentives is making it increasingly challenging for companies seeking investment to explain the market structure to investors because of the variance in the market, according to the panel.
There was also widespread agreement that the federal government will need to take on a more proactive leadership role in this policy debate to send a stable market signal to industry and investors and ensure its ambitious decarbonization goals are met. Many within the competitive power market community agree that a national carbon pricing policy will provide the needed clarity for all stakeholders to pursue investments for project development.
Addressing climate challenges will require a coordinated effort from federal and state policymakers to be effective. Putting a price on carbon is the most direct and transparent way to establish an even playing field. It can be increased over time, have a border adjustment placed on it, and raise revenues to further enable the transition. It will provide the public with a direct view of the cost of carbon on our economy. However, the federal government has shown little political will to implement a price on carbon. The panel felt a carbon policy is the fastest means to rapidly change behavior economy-wide and unleash competition within the market.
The next best solutions could include the implementation of a carbon price on an RTO basis and the application of clean energy standards. Continuing to expand the patchwork system will increase inefficiencies across the sector.
In addition to providing market clarity through policy, several challenges remain to incentivize the transition to clean energy. The panel agreed that companies must innovate their way out of these issues or dissipate out of the market and identified the following challenges:
- Interconnection queue reform that ensures renewables are integrated with the grid.
- Need the ISOs to be more innovative with their solutions. The cost of updating the system is potentially prohibitive under the current policy/market framework.
- Siting and permitting are becoming significant roadblocks to increased renewable penetration.
- Increasing market design transparency to enhance capital investment flows into the market.
- Investing in software to help manage storage assets will be a key component of the future grid.
The pandemic accelerated the pace of business, which is creating great opportunities and risks.
In part four of the Competitive Power Series, we will present the key findings from the “Advancing Decarbonization” panelists.