Competitive power markets have delivered decades of benefits for millions of customers. But market rules must adapt to provide meaningful solutions to the evolving challenges facing our electric grid. With the North American Electric Reliability Corporation (NERC) releasing its 2023-2024 Winter Reliability Assessment and the Federal Energy Regulatory Commission (FERC) releasing its final report on grid challenges during last year’s Winter Storm Elliott, it is clear that specific adjustments can strengthen and reinforce existing market structures to benefit customers.
Well-designed electricity markets have had major benefits for consumers. Customers in the PJM Interconnection footprint – which serves 65 million Americans across 13 states and the District of Columbia – save an estimated $3.2-4 billion per year as a result of living in a competitive market region. Regions with competitive power markets have also been leaders in deploying renewables, reducing emissions, and offering greater choice to customers.
But with extreme weather events increasing in both intensity and frequency, rapid retirements of dispatchable resources like nuclear and natural gas, and the challenges that come with integrating intermittent resources reliably, targeted market reforms can help grid operators and generators to addresses these and any future issues the grid may face.
Consumers are well aware of the stakes. In a Morning Consult poll conducted for EPSA, 56 percent of adults said U.S. policymakers should be doing more to ensure electric grid reliability. More than 80 percent ranked reliability or affordability as their top energy concern.
What’s Working
Some elements of market structures are clearly working. Certain existing market rules are functioning as intended, like the single clearing price mechanism that helps ensure energy generators are dispatched economically, and the “pay for performance” model that helps to facilitate the lowest prices for customers while securing sufficient resources to meet demand.
Securing Accurate Price Signals Must Be a Priority
But it is also critical that regulators examine what is no longer a good fit. A priority must be addressing the factors that have impeded markets’ ability to provide accurate price signals.
Factors such as out-of-market subsidies have skewed these price signals, making it hard for companies to invest adequately and keep the right resources online to ensure reliability. The regulatory decisions made at the state and federal levels that have led to these market distortions must be addressed.
Reliability Planning Needs an Update
The way reliability planning parameters are defined also needs to be updated to incorporate a wider variety of considerations when making reliability assessments. This means that grid operators should think more holistically about the rising threat of extreme weather, rising demand from electrification, and the reliability attributes of various resources when planning for capacity needs.
Policies Must Remain Predictable and Rules Need to be Enforced
Bringing new generating resources online is a multiyear planning and development process. But generators cannot begin this process to meet rising demand if policies quickly change and alter the financial calculus of their projects, especially when these risks cannot be reflected in market offers. It is crucial that rules are enforced consistently, and policies remain predictable.
Ensure Access to Dispatchable Sources
Finally, sufficient infrastructure must be available to meet demand at peak and in long-duration emergencies. Dispatchable sources of power generation are a crucial component of a stable grid. Market reforms should ensure that dispatchable sources are readily available and adequately compensated for the reliability services they provide. They should also ensure that the right infrastructure, systems, and incentives are in place to guarantee reliable fuel supplies even in extreme conditions.
The Bottom Line
American households and businesses depend on reliable, cost-effective electricity that is available at the flick of a switch. Wholesale electricity markets have consistently delivered that. But in an increasingly challenging environment for the energy system—with rapidly changing policies and rising extreme weather putting strain on grids across the country—power market structures must keep pace. EPSA has presented a series of proposed market reforms to support these goals, along with Principles of a Reliable Energy Expansion.
Learn More
View EPSA’s Recommendations for Market Design to Enhance Reliability.
