In August of 2017, the U.S. Department of Energy (DOE) officially released a long-anticipated study examining the reliability of the U.S. electric grid. From the day it was commissioned, the grid study incited intense opposition from pro-renewables groups, fearing that the report could have a predetermined outcome that would disproportionately blame renewables for the early retirement of so-called baseload power plants. Now, even after the report’s full publication, the study remains controversial and has been interpreted in many different ways.
While the primary findings of the study align with market analyses, the underlying tone and assumptions that inform the study deserve additional scrutiny. In his cover letter to the report, U.S. Energy Secretary Rick Perry notes that “policymakers and regulators should be making decisions based on what the markets look like today, not what they looked like years ago.” What if this doesn’t go far enough? The grid study references Energy Information Agency (EIA) data gathered between the years 2002 to 2017, which should capture the primary factors contributing to a modern grid system. But shouldn’t a study assessing such a rapidly evolving energy landscape, and making recommendations that will impact the future, also consider what markets might look like tomorrow?
Goals and Findings
Upon commissioning the report, the USDOE set out to achieve the following 3 goals:
- Examine the evolution of wholesale electricity markets and the extent to which Federal policy interventions and the changing electricity mix should adapt.
- Determine whether wholesale markets incentivize adequate grid resilience, and if not, how this could affect grid reliability and resilience in the future.
- Measure the extent to which regulatory burdens, such as tax subsidy, are responsible for forcing premature retirement of baseload power plants.
In addressing these goals, the study found that electricity markets have continued to operate as designed in the face of economic volatility. However, the study strongly suggests that record low wholesale energy prices, primarily caused by cheap natural gas, are placing stress on conventional baseload generation resources that could threaten future grid reliability.
The North American Electric Reliability Corporation (NERC) defines baseload power as any resource that is economical to run, has low forced and maintenance outage, and has low exposure to fuel supply chain issues, making them more resilient to disruptions. Resources traditionally considered to be baseload, namely coal and nuclear, require high capital inputs to maintain steady power production, such that constrained revenues could affect their ability to operate reliably if prices continue to decline.
The findings imply that undue pressure placed on traditional baseload resources could endanger essential reliability and resilience-enhancing attributes of the U.S. electrical grid, which is a driving factor behind last week’s announced baseload compensation proposal from the USDOE. Taking at face value the assumption that baseload power is necessary to have a well-functioning grid, this may be true. However, today’s electricity markets are challenging the validity of this assumption. The grid’s evolution toward greater decentralization and the pace of technological innovation mean this assumption could be an outdated way of thinking.
Yes, The Grid Is Changing…
Emerging cleantech innovations such as wide-scale renewable energy deployment, distributed energy resources (DERs), demand-response software, advanced analytics, and the addition of technologies like energy storage and microgrids are revolutionizing the concept of a reliable electrical grid. Evaluating these disruptive technologies and new renewable resources using assumptions based on how the centralized grid has historically promised reliability is a non-sequitur pursuit.
In the evolving energy landscape, an equivalent level of grid reliability may be attainable through methods outside traditional centralized power plants. Under NERC’s definition of baseload power, modern renewable technologies such as wind and solar fit the bill: renewables are becoming the cheapest source of electricity in many markets, they require very little downtime due to maintenance, can be used in combination (or with batteries) to address intermittency concerns, and are isolated from exposure to the risks associated with fuel supply chains. With greater energy flexibility—achieved through integrating fuel-free clean energy resources, distributed generation, electric vehicles, energy storage, demand-response software solutions, and other emerging energy opportunities—grids have the potential to respond reliably to fluctuations in supply and demand with minimal risk and lower cost than traditional baseload units.
… Sometimes Change is Good
It’s no question that a healthy grid requires a diversified power mix—the required constitution of that mix, however, is not set in stone. Assuming that the retirement of coal plants and proliferation of renewable power necessitates action to artificially preserve dirty baseload generation only serves to delay the inevitable renewable energy transition and creates unnecessary roadblocks for new forms of clean generation.
The retirement of old coal power plants, due to greater competition from cheap natural gas and renewable energy, and subsequent pressure placed on traditional power generators should not be seen as cause for panic, but rather as growing pains.
Governments, utilities, organizations, and companies who embrace this change will be poised for success in the new energy landscape, while ones who resist may find themselves playing catch up.
The three megatrends of mass digitization, decentralization, and decarbonization of energy supply, combined with an ever-increasing demand for energy, are redefining the energy landscape and the way companies treat energy procurement. Once a passive cost center, energy is increasingly seen as an asset that can be actively managed and improved upon over time. Active energy management is a methodology that companies use to respond to this changing landscape in a cost-effective and sustainable manner.
To learn how to adopt a cohesive strategy for active energy management to navigate changing energy markets, we invite you to explore our e-book: Activate an Efficient and Sustainable Future.