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FERC tackles modernization of U.S. power markets

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Kent Knutson's picture
Energy Market Specialist Hitachi Energy USA Inc.

Kent Knutson is a market specialist focusing on energy industry intelligence for Hitachi Energy.  He has more than 30 years of experience designing and developing intelligence products for some...

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  • Oct 19, 2021
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This is a reprint from an article published in Power Magazine on October 18, 2021.

The seven major organized electricity markets scattered across the United States account for roughly two-thirds of all power generated in the country.  Most of these markets are made up of Independent Service Operators (ISOs) and Regional Transmission Organizations (RTOs) that were created more than twenty years ago.  The primary mission of the markets is to neutrally manage large segments of the power grid efficiently, cost-effectively, and reliably.  Driven by the tremendous growth in wind and solar resources in recent years, the original market rules, developed to accommodate mostly traditional resources like baseload coal and nuclear power, need to be updated to better accommodate flexible resources.  

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In this new transitioning market, the primary question is: how can flexible resources be adequately compensated while simultaneously maintaining a reliable and resilient grid?  That has been the driver behind several Federal Energy Regulatory Commission (FERC) technical conferences this year.  The most recent occurred on October 12, 2021, addressing the challenges and opportunities of optimizing energy and ancillary services markets.  The heavily attended FERC meeting, the fourth in a series, highlighted the importance of how new modern electricity market design is needed to accommodate the rapid changes occurring across the power industry.  The combination of diverse energy resources, capacity, and fast-responding flexible resources such as quick-responding natural gas turbines, energy storage and new technologies to improve power quality are paramount to keeping the lights on.

Key questions facing the industry include redefining procurement processes and evaluating the pricing of market products. Each ISO/RTO is comprised of different resource mixes that create different design issues, and some markets are further along than others in addressing resource needs.  To better visualize the resource shifts that have occurred in various ISO/RTOs over the past two decades and where those markets are headed, the research staff at Hitachi Energy’s Velocity Suite have prepared a few charts. 

U.S. ISO/RTO map

What is the current makeup of operating capacity across markets today? 

The seven organized markets vary in terms of operating capacity by fuel.  Utility-scale solar represents more than 21.1% of all operating capacity in CAISO, while SPP (27.5%), ERCOT (25.1%), and MISO (13.5%) have built large wind footprints in recent years.  ERCOT is home to the largest number of wind turbines with more than 31.8 GW of installed capacity. 

U.S. installed operating capacity (GW) by market region, by fuel-mix percentage

 

Across all markets, the combination of natural gas combined-cycle and gas peaking capacity dominates, particularly in NYISO (56.5%), ERCOT (52.4%), and ISO-NE (49.6%).  The PJM is host to the largest fleet of nuclear power plants with 15.9% of the system’s capacity coming from nuclear.  The non-organized markets (Non-OMs) across the country are host to the most diverse fuel mix and the largest footprint overall with natural gas (174.7 GW), coal (72.8 GW), hydro (59.7 GW), and wind and solar combined (46.9 GW) leading the way.  The Non-OM is made up of utilities and generation companies spread mostly across the western and southeastern U.S., where organized markets are yet to form.  

How have the markets produced electricity over the past two decades since the advent of the ISO/RTO model?

Over the past two decades, most markets have experienced an increase in the production of electricity from natural gas while coal has been in decline.  Power production by wind and solar was hardly noticeable in the 2001-2010 period, but with recent additions has begun to contribute significantly across all regions.

U.S. electricity production (MWh) by market, by decade 2001-2020

 

Comparing the two decades, coal has decreased by 32.8% while natural gas production has increased by 65.6%.  Wind (up 545%) and solar (up 1,148%) represented the largest percentage gains.

What type of resources are currently under construction or holding permits to build in various markets?

Virtually all capacity additions currently under construction or permitted to build are solar, wind, and natural gas.  Most of the capacity on the fast track is in ERCOT, where 28.4 GW of utility-scale solar and wind are currently under construction or permitted to build.  Solar accounts for 68.6% of the new build capacity, while wind represents 22.7%.  PJM has a significant buildout ongoing with 21.6 GW of capacity under construction or permitted – most is natural gas (63%) with solar (24.4%) and wind (11.7%) accounting for most of the rest. 

U.S. planned capacity additions (MW) by market region, by fuel, by status

 

Solar and wind dominate new builds in MISO with 8.5 GW (77.9%) of capacity currently under construction or permitted. Overall, across the seven markets and the non-OM regions, solar represents 44.7% (49.1 GW) of total capacity currently in construction and permitted to build.

More to come

Along with the recent technical conferences focused on how to support needed flexible resources through capacity and ancillary service markets, back in mid-July the FERC initiated the rarely used ‘Advanced’ Notice of Proposed Rulemaking (ANOPR) to expedite and improve current transmission planning, cost allocation, and interconnect approval efforts.  All meetings and initiatives are signs of the dedication and desire to solve current market obstacles that could inhibit the continued expansion of carbon-free resources during the years to come.

Topping the list of market goals is ‘reliability’ – customers depend on it.  The recent rapid growth in variable resources like wind and solar have created a higher demand for fast-responding flexible resources. This is the crux of the need to modernize market design that was originally written to manage an abundance of traditional resources like coal and nuclear power but now must contend with rapidly changing grid conditions driven more by weather than generator or transmission failure. 

The future is dominated by wind and solar and the closure of more and more aging coal, nuclear, and natural gas plants.  With more variable resources, the need for flexible grid solutions increases.  Overhauling current market design precepts is critical to better optimize the grid for reliability and resilience while continuing to keep customers happy.

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Bob Meinetz's picture
Bob Meinetz on Oct 19, 2021

"Wind (up 545%) and solar (up 1,148%) represented the largest percentage gains."

Kent, comparing percentage gains to boost the apparent value of wind and solar is one of the standard deceptions in the renewables playbook, and offers no support for your contention

"The future is dominated by wind and solar..."

Why? 1,148% more than next-to-nothing is, unfortunately, still next-to-nothing.

No, despite the ardent wishes of its followers, wind and solar will dominate no energy future on Planet Earth. They're unreliable, their land use and impacts on wildlife are abominable, and they're dependent on fossil fuel gas. Most importantly, there's no more time to waste.

 

Kent Knutson's picture
Kent Knutson on Oct 21, 2021

Bob, I am certainly not making a case for wind and solar, just displaying facts -- comparing two full decades of data. I totally agree . . . 1000% growth from virtually nothing doesn't show much.  The story is about FERC's grapple to find ways to compensate 'flexible resources' which are needed regardless of how little the wind/solar footprint is.  One of those flexible resources is fast-starting natural gas turbines . . . PJM has a lot of natural gas power under construction, while pretty much all of the other regions have a lot of solar under construction or projects holding permits.  It is just data. Your attached chart says it all . . . I am for all resources that ensure reliability and make economic sense.  thx for your comment.      

Bob Meinetz's picture
Bob Meinetz on Oct 21, 2021

Kent, unfortunately "just data" are being exploited to portray certain policies as inevitable - policies that show very little promise for reducing carbon emissions. For example, you write

"The future is dominated by wind and solar and the closure of more and more aging coal, nuclear, and natural gas plants."

in the future-now tense favored by disciples of solar and wind power. By replacing "will be dominated" with "is dominated", you obviously consider domination by wind and solar a fait accompli, when it's anything but (Germany, the UK, and other European renewables-wannabes are currently learning that lesson the hard way).

The problem for FERC, like Germany and the UK, is attempting to solve an existential problem with a self-defeating solution. As we add renewables to reach zero carbon emissions, we're forced to add more and more gas to keep the grid stable, increasing emissions. Failure, with those constraints, is the only possible outcome.

Nuclear power is only source of clean energy that's both dispatchable and reliable. I believe it will ultimately be the primary means for generating electricity worldwide; the singular uncertainty in my mind is whether we will reach that goal soon enough to matter.

Joe Deely's picture
Joe Deely on Oct 24, 2021

Always good to be clear on definitions.  Personally, I think of the "future" when looking at  energy markets as being pretty near-term.  The next five years makes a lot of sense but I think 2030 is also a good marker since many projects - nuclear for example - take at least that long to build.

With that definition in mind and looking at the US market - which is what Kent is writing about the following is obvious based on projects either already under construction or in development - 

"The future is dominated by wind and solar and the closure of more and more aging coal, nuclear, and natural gas plants."

 

My only change would be to say solar/storage.

Bob Meinetz's picture
Bob Meinetz on Oct 24, 2021

You mean solar/gas/storage, Joe? At not one location in California are grid-scale batteries storing exclusively solar energy. Their owners are storing a grid mix - and why wouldn't they? If they relied on solar to charge their batteries, their expensive investment would be useless three-fourths of every day.

Take a cue from Germany - renewables are a failure. How long will evangelists continue their destruction of Earth's climate just to salve their wounded pride?

Germany 'Set For Biggest Rise in Greenhouse Gases For 30 Years'

Joe Deely's picture
Joe Deely on Oct 25, 2021

Your typical red herring argument Bob.... 

 

Why? because you have nothing to refute Kent. Nothing.

 

The future is dominated by wind and solar and the closure of more and more aging coal, nuclear, and natural gas plants 

 

Total domination. It's not even close.

Kent Knutson's picture
Kent Knutson on Oct 26, 2021

Bob and Joe, thanks for the comments . . . it's all good.  In Bob's defense, nuclear is a necessary part of the future fuel mix.  It's been getting a lot more attention recently . . . it seems like the tide is shifting to some extent . . . here's a story posted by Ed Crooks (Wood-mac) highlighting how nuclear should be part of the solution  https://www.woodmac.com/news/opinion/the-nuclear-moment/?utm_source=newsletter&utm_medium=email&utm_term=other&utm_content=ed2021143iss145&utm_campaign=inside-track   Joe, thanks for clarifying the sentence I wrote on 'domination'.  It has to do with the fact almost all projects across the U.S. that are currently under construction and holding permits are solar and wind . . . and I agree all utility-scale solar should be considered solar+storage . . . natural gas is the only other power resource with any projects under construction outside of the two massive nuclear reactors at Vogtle.  I contend the future needs a balanced portfolio of renewables, natural gas, nuclear, and to some degree, even coal until there are a lot more flexible resources deployed -- energy storage and fast-starting natural gas.  Thanks again for your comments.   

Joe Deely's picture
Joe Deely on Oct 26, 2021

Hey Kent,

 

I would love to see more nuclear in the mix. That said, the trends and the facts show that over the last ten years nuclear has contributed no additional generation to WW zero carbon mix. None.

 

Because of its long lead time and as you said - closure of aging plants - nuclear will contribute very little if any additional generation to WW zero carbon mix over this decade as well.  Same goes for US. Meanwhile, solar/storage and wind will dominate and massively grow their share.  These are plain and simple facts/trends.  

 

Hopefully nuclear gets act together by the 2030s and can finally make a contribution. In particular, I think SMRs have a chance of gaining some traction. 

 

As for your Wood-Mac link - I think this comment matches my thinking exactly.

In the US, Wood Mackenzie’s base case forecast is that nuclear generation will remain steady over the next three decades, with financial support and regulators helping most existing plants to stay open, and new SMRs replacing any that are shut down. 

Unless/until we see some dramatic improvements in the nuclear model - this is the best we can hope for.

 

By the way your article was great.  You laid out the facts/trends. Spot on. 
 

The only thing I disagree with is your coal comment.  We need to get rid of coal - yesterday.  Every utility IRP should be talking about how they will replace any remaining coal.  Although I am happy with the progress we have made in shutting coal and lowering CO2 in the US I think we can/should move faster.  

 

 

 

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