An Important, if Unsurprising, Study on our Electricity Grid from DOE
Earlier this year, the Secretary of Energy requested a report from the Department examining the nation’s electricity grid. After months of speculation, rampant rumors, leaked drafts, and grossly premature prognostications, the Department of Energy (DOE) this week released a report very much reflective of what the DOE does best: crunch data and numbers, analyze what they mean, and make apolitical policy recommendations based upon facts. Indeed, the Staff Report to the Secretary on Electricity Markets and Reliability (“Staff Report”) only surprises in the fact that within an increasingly divisive Washington, the report is … not divisive.
Instead, the 181-page Staff Report has been widely viewed as a reasonable analysis of the current state of our nation’s power grid, combined with an accurate recognition of the challenges facing the nation’s electricity system today and into the future. The DOE staff recognizes that while the mosaic of power markets and balancing authorities across the nation have provided affordable and reliable electricity to consumers and businesses alike for decades, changing circumstances and economics within these regions should prompt OR has prompted policymakers at both the state and federal levels to take a second look. Specifically, DOE’s report encourages a reevaluation of the market structures currently in place to determine whether they are functioning in a way to ensure that the affordability and reliability we currently enjoy will continue to be present in the years to come.
Importantly, the Staff Report recognizes electric generation attributes not currently factored into the functioning of most centrally administered (by an RTO or ISO) and vertically integrated (state regulated) markets. Specifically, today’s power markets do not value resiliency, which is essentially the ability of the power grid to bounce back from a rare, but not unprecedented, event. For example, the polar vortex that hit the eastern United States in 2014 stressed the power grid in atypical fashion, with system operators relying upon a deep bench of traditional generation assets to keep the lights on and homes heated. Since that event, 5,573 MW of coal-fired capacity that provided resiliency to the abnormal conditions precipitated by that unusual weather event have been shuttered. While the DOE report finds that we have adequate reliability today, it is less clear whether the grid would have the resilience to again weather a polar vortex reprise.
The Staff Report recognizes that the jobs, tax, and general economic benefits associated with today’s diverse set of resources provide currently unrecognized value as well – especially in those cities and towns where large but threatened electricity generation plants reside. There are many generation attributes that today may not be taken into account when dispatching and compensating the different resources that contribute to our diverse electricity mix. These include energy security, the national security aspects of maintaining a leadership role in the nuclear energy sector, and even state-level goals to achieve a certain emissions profiles. But given that different resources provide different types and levels of attributes, the most efficient and resilient – rather than simply the most diverse – resource mix is what we should seek to maintain.
Surprising nobody, except maybe the premature critics of the report, the Staff Report finds that the shale revolution, and the abundant and affordable natural gas supplies it is providing the country, has imposed competitive pressure on the economic viability of coal-fired and nuclear power generation facilities. This revolution has provided countless jobs, was a primary contributor toward lifting the nation out of the Great Recession, and continues to spur needed economic development. However, continued activist opposition to the construction of new energy infrastructure threatens to rein-in the potential for natural gas to be an endless, rather than merely plentiful, resource to power America’s electric grid.
Importantly, and as we have previously said, the Staff Report recognizes that environmental regulations have taken a significant toll on the retention of the power plants that have for decades been the backbone of the country’s electricity grid. While some of the coal-plant retirements identified by the DOE could be attributed to factors such as age, the report finds that the timing of many of the retirements points clearly toward regulatory burdens. Along these lines, the report recommends that the Environmental Protection Agency regulations that presently discourage the upgrade of fossil-fueled power plants be revisited and revised to facilitate efficiency and reliability improvements.
The above challenges, combined with depressed electricity demand and the operational challenges imposed by increasing levels of variable resources such as wind and solar, have all contributed to the Staff Report’s call for “a comprehensive strategy for long-term reliability and resilience.” We could not agree more. Often times you fail to appreciate what you have until it is gone. Such could be the case with our power grid, and when it comes to billion-dollar assets, retirement decisions are not easily reversed. The costs to our nation could simply be too great to not refocus on the issues of reliability and grid resilience before it is too late.
Speaking of costs, one of the only things that the Staff Report does not tackle is to quantify the impact that the stresses on the nation’s electricity portfolio are likely to have on electricity prices, employment, and the overall economy. Fortuitously for both stakeholders and policymakers alike, this work is well underway. The well-respected global information and analytics firm IHS Markit is now wrapping up its analysis, and we here at the Global Energy Institute are proud to be a part of this effort. Stay tuned until next month, when this new report will expose the real-world economic implications of today’s challenged power mix.