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Opinion: FERC, PJM and the MOPR decision (REPOST)

Andrew Chastain's picture
Project Controls Analyst Ameren Electric

Resourceful Utility Project Manager with 8+ years of industry experience, skilled in streamlining operations and managing projects to ensure maximum stakeholder satisfaction with minimal budget...

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  • Sep 10, 2020
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Yesterday, December 19th, FERC issued an "ORDER ESTABLISHING JUST AND REASONABLE RATE." [pdf] This is an order piggybacking off of the June 2018 order by stating that they issued the earlier order:

"finding that out-of-market payments provided, or required to be provided, by states to support the entry or continued operation of preferred generation resources threaten the competitiveness of the capacity market administered by PJM..."

Unfortunately, that June order was unable to reach a final determination as to what a suitable replacement would look like for PJM's Open Access Transmission Tarrif and the Minimum Offer Price Rule's (MOPR) inability to account for the price-suppressing out-of-market subsidies that renewable energy generation resources were receiving.

What's Wrong with Subsidies?

The 'out-of-market payments' were designed to alter our power generation mix by making it more affordable to build and maintain renewable energy generation facilities. These subsidies wouldn't exist, however, if such ventures were economically competitive enough to provide a viable return on investment to the energy industry on their own. The necessity to prop these generation facilities up against cost-effective options already on the market is a self-evident indicator that the technological advances made in photo-voltaic and wind turbine generation are not yet ready for grid-scale integration.

The problem we run into isn't in the few thousand dollars given to a couple of farmers to build some half-acre solar farm and sell back the excess energy to their local utility via net metering in western Iowa. The problem comes when there's a wide-spread adoption of a still inefficient (relatively speaking) technology-set due to the guaranteed financial margin provided by government intervention - which will allow the fiscal investment in renewable technology to increase, while failing to maintain the foresight required to analyze the grid-scale impacts of so many small, distributed energy resources (DERs) coming online at once.

Politics, Preference, and Popular Opinion

Almost every opinion written on this subject is calling out an overreach on the part of FERC to intentionally and "artificially inflate the cost of renewable energy resources." What most of these opinions fail to acknowledge and reconcile is that these measures are a direct response to the artificial price suppression of renewables by state subsidies.The regulatory body is only trying to restore some parity to the playing field. In the mind of FERC, ideally states would just stop offering subsidies to force preferential change before it's economically advantageous or technologically advanced enough to do so. It seems irresponsible on the part of the states offering these subsidies with a wholesale disregard for the impact installing ineffective facilities could potentially have 10 years from now when a rapidly-changing marketplace for renewable energy could find these power plants' to require substantial overhauls (due to further technological advances).

This is also to ignore the existing hard-working power plants running on fuels like uranium, natural gas, coal, etc. that are being artificially priced out of the marketplace well ahead of their projected lifespan. The grid is maintained and decisions on new generation production are made based on the information we have in front of us regarding average plant lifespan, expected outputs, etc. To force a 500MW coal plant offline because it can't compete with 35MW of solar energy on a price per MW basis is decreasing the supply on the grid without replacing it in full. I, for one, would hate to large numbers of our fleet of power plants providing a huge portion of our grid's electricity all shutter their doors due to artificial economics before there's enough renewable energy to replace it on the overhead lines that we so fiercely depend on.

Conclusion

Though my personal preference would be to see state subsidies stop entirely and permit the energy market to find it's own mix based on the demand for power rather than forcing preferential change in advance of it's 'natural' time - which is very clearly coming soon, I cannot, at the same time, fault FERC for trying to simulate a free market with so many price-point decisions outside of it's current scope impeding it's ability to regulate it's market. FERC's job is to regulate the energy industry and maintain a fair environment for companies to safely deliver a public resource without private manipulation. I for one think this step is a net positive to preserving grid stability, while also simulating a free-market approach to providing energy to a population who desperately need it.

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Matt Chester's picture
Matt Chester on Sep 10, 2020

To force a 500MW coal plant offline because it can't compete with 35MW of solar energy on a price per MW basis is decreasing the supply on the grid without replacing it in full. I, for one, would hate to large numbers of our fleet of power plants providing a huge portion of our grid's electricity all shutter their doors due to artificial economics before there's enough renewable energy to replace it on the overhead lines that we so fiercely depend on.

It's interesting timing since you first wrote this in December, and now many months later we're seeing some fallout with sub-optimal marketplace dynamics in the California grid that led to the last month of turbulence. Would you update or supplement your findings here based on any of those events? 

Andrew Chastain's picture
Andrew Chastain on Sep 10, 2020

I was literally thinking of California as I was sharing this post for all the same reasons you mentioned.  I personally think that the grid-market manipulation by RTOs and state subsidies are directly resposnible for California's issues.  Right now they have an insufficient energy mix that's simply not capable of dealing with the state's electrical needs.

Quite frankly, California has reached a point where they've shuttered nuclear plants to force the energy mix currently present and now they're having to black start old coal plants to make up the delta between supply and demand, which is in full opposution to the green, carbon-free agenda they've pushed for years.

I hate to say they're reaping what they've sowed, but here we are.

Bob Meinetz's picture
Bob Meinetz on Sep 11, 2020

Andrew, agreed. Question: what old coal plants has California had to black start? That's news to me.

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