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US Electricity Market Rule Change May Hurt Renewable Projects

Sherco Coal-fired power station

Photo by Tony Webster.

The Federal Energy Regulatory Commission (FERC) has updated regulations about the power capacity market in a way which will favour fossil fuel sources and hinder new renewable projects, including offshore wind, demand response, storage and energy efficiency schemes.

On December 19th, at the height of the pre-Christmas festivities, FERC changed a regulation called the Minimum Offer Price Rule (MOPR), which is intended to ensure sufficient generating capacity exists in the market – so that a provider cannot lower prices to a ridiculous level to drive out competitors.

Old, polluting coal plants are being superseded by clean energy. This political intervention by the three current FERC commissioners (2-1 Republican), has given a lifeline to polluting plants and looks to seriously impact the growth of renewables as well as ancillary technologies like storage in the US energy market.

PJM is a regional transmission organization (RTO) that coordinates the movement of wholesale electricity in all or parts of 13 states and the District of Columbia. It covers some or all of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and Washington, DC. PJM runs the biggest power auctions in the world. Their capacity auctions are valued at about $8.5 billion a year. In its power mix are a lot of legacy coal and natural gas power stations. This rule change will help those power plants to continue to generate electricity, and consumers will have to pay more for their power. The effects will be "Positive for existing natural gas and coal unit owners and negative for owners of nuclear units eligible for zero-emission credits and developers of new renewable energy, demand response, storage and energy efficiency projects," ClearView Energy Partners said in a note to clients.

Grid Strategies studied the impact FERC’s order is likely to have on PJM’s 65 million customers.

“We estimate the total cost of the MOPR to PJM consumers could reach $5.7 billion per year, a 60% increase in cost compared to the current capacity market,” they conclude. “The average residential customer in PJM could see their electric bill increase by over $6 per month.”

The Effect on Renewables

"Anybody who is looking at replacing a [generating] resource with a new resource would have to look at the risk of paying twice for the new resource — once for the investment in that new resource and again for capacity out of the market to meet their capacity obligation," said Jay Morrison, vice president of regulatory issues at National Rural Electric Cooperative Association (NRECA).

This does not bode well for US Offshore Wind projects or the effects on the climate. No doubt many different stakeholders will be lobbying to have this rule change revoked. It is not the best way forward for a young industry.

Here at NewEnergyUpdate we will be keeping a close watch on developments on this issue.

Authored by Julian Jackson – writer on technology, arts, blockchain and cryptocurrencies

Originally posted at New Energy Update by Reuters Events US Offshore Wind Blog.

Adam Minkley's picture

Thank Adam for the Post!

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Bob Meinetz's picture
Bob Meinetz on Jan 16, 2020 12:23 am GMT

Adam, supporting / opposing carbon emission limits at the state level is pointless. If FERC considers being environmentally reponsible "anti-competitive", I'm not surprised - it makes as much sense as anything in Trump's administration - but it defeats the purpose of any state taking responsibility.

Trump's damage to the environment, even after one term, will take decades to reverse.

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