EPSA president and CEO Todd Snitchler recently spoke at the UT Energy Symposium (UTES), a weekly guest lecture series sponsored by the University of Texas at Austin Energy Institute (EI). UTES facilitates important discussions about the key energy challenges facing our world, from climate change policy and decarbonization to emerging technologies and improving energy efficiency. Todd shared a fundamental understanding of how competitive power markets and suppliers operate, with special emphasis on how competition fosters affordability and reliability while encouraging environmental benefits and new technologies.
Watch his livestreamed presentation and discussion with Dr. Carey King, Assistant Director at the Energy Institute and Research Scientist and Professor at UT Austin, here.
Why Competitive Markets?
“Competition puts downward pressure on prices and encourages innovation – as well as efficient market entry and exit,” Snitchler told Symposium attendees, noting that PJM Interconnection markets help save $3.2-4 billion annually while seen emissions drop 39% since their inception in 2005. The benefits of competition are wide-reaching. Few might realize that in addition to the economic and technological advancements competitive electricity markets facilitate, competitive markets will also prove pivotal in ensuring a just energy transition for all.
“A sustainable future relies not just on reduced emissions or a continued industry commitment to meeting the highest environmental standards,” he told the audience. “It also relies on enabling what many have termed a just transition, that does not unduly increase energy costs or create scenarios that threaten the ability of the system to meet the nation’s 24/7 reliance on electricity.”
Competitive markets hold generators accountable for keeping power supply in step with demand, while still maintaining a focus on doing so affordably and with the lowest emissions possible. Suppliers work to check all of these boxes as they work to earn a fair rate of return on their investments.
EPSA is leading a fact based, data driven reality check on where the market stands, where it is headed, and how it will reach its goals. These insights are channeled into critical dialogues with policymakers and the public to help them fully grasp the cost, timelines and challenges of delivering reliable power at affordable prices with the least impact.
The Texas Grid
Texas is often referred to as an energy superpower. In fact, many EPSA member companies are Texas-based, including BP, Shell, Calpine, NRG Energy and Vistra. Competition has benefited the Texas energy market over the past few decades, namely in the renewable energy movement. “In ERCOT, competition has been a driver of renewable growth and helped reach record levels of wind and solar generation in 2021,” Snitchler said.
During the lecture, ERCOT’s operations and questions surrounding reliability were top of mind for the audience. In light of the havoc that Winter Storm Uri wreaked across the Lone Star State, Snitchler made note of findings published in a recent paper by Intelometry. Its authors found that competitive power consumers in Texas were protected from the rate spikes that came after the storm, in contrast to their neighbors in monopoly utility-controlled markets.
When Dr. King asked how people should view competitive markets in an emergency like Uri, Snitchler replied that the challenge came down to failure across the entire energy system back in February. “It wasn’t merely a generator failure. It wasn’t merely a wind, gas, or coal generator failure. There were wellhead freezes and utility shutoffs that maybe shouldn’t have been shut off. There were a number of things that cascaded into a terrible event, but I think it’s safe to say that market or not, no one wants an outcome like that again if it’s at all possible.” He explained that certain factors of a properly designed market – which correctly compensates and rewards generators who can perform and show up, who are going to be able to secure the resources needed, which are ultimately supplied by people on the other side of the contract – need to be addressed to ensure the system operates both safely and reliably.
Competitive Markets and Climate Change
In his discussion and Q&A with Dr. King, Snitchler spoke about EPSA’s view on carbon capture and sequestration (CCS) as a climate change mitigation strategy. He said that EPSA views CCS as a possible decarbonization pathway and as a key example of how innovation can keep existing resources online to bolster reliability.
Much of the Q&A focused on government-facing advocacy efforts and EPSA’s view of market-based climate initiatives. Snitchler noted that EPSA members take a variety of approaches to carbon pricing policies, but EPSA speaks for the sector as a whole. Some member companies have advocated for a carbon dividend or carbon fee, for example. Instead, in conversations with senators about the hotly debated reconciliation bill, EPSA championed an economy-wide price on carbon as a sound, rational and competitive approach to emissions reductions. In line with the business community’s view on carbon pricing, EPSA will continue to advocate for a carbon price and allow members to thoughtfully craft their own strategies for staying competitive going forward.
EPSA members are a key piece of the puzzle when it comes to not just providing reliable and affordable power, but also to advancing decarbonization goals and supporting increased electrification. As we look ahead to 2022, EPSA will continue to advocate for fuel-and technology-neutral competitive market design that allows all resources to play a part in providing reliable, cost-effective, and climate-conscious power generation solutions.