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Time to change the capacity markets for energy?

Doug Houseman's picture
Visionary and innovator in the utility industry and grid modernization Burns & McDonnell

I have a broad background in utilities and energy. I worked for Capgemini in the Energy Practice for more than 15 years. During that time I rose to the position of CTO of the 12,000 person...

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  • Jun 17, 2021 11:30 am GMT

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As I watch the ERCOT and CAISO markets struggle to keep the lights on during this heat wave, I have to wonder, is it time to revamp the capacity markets? How reserve margins are calculated?

Today any resource, schedulable or is counted in most reserve margins and capacity markets – maybe they don’t get full capacity, but they count. 

Is it time to stop counting generation sources that are not available 24/365 (with the exception of planned outages)? 

Should we require inspections for winterization and other weather issues? 

Should we require firm contracts for fuel or 24-48 hours of fuel on site? 

For renewables should we require storage of 16-48 hours?

Should we require a bond and forfeit of that bond if a plant does not run?

Should the market monitor or operator be able to see the status of that on-site fuel or storage energy?

Should payments for capacity be monthly or quarterly? 

Should they change with the monthly peak – more in winter, less in spring?

These are tough (and for some “fighting words”) questions that as we push to more and more variable resources need to be fully discussed in public.

The decision on these issues will profoundly change the cost and value of generation, storage, and transmission, so they should not be discussed lightly or ignored.

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Richard Brooks's picture
Richard Brooks on Jun 17, 2021

Totally agree, Doug. and

I commented to Matt on another thread, I learned a hard lesson: "Software Engineers should never swim in waters where politicians are the dominant species". I no longer participate in capacity market design discussions where economists and politicians are deciding the solution for grid reliability, resiliency and resource adequacy. Truly a painful lesson, which I have learned from.

Bob Meinetz's picture
Bob Meinetz on Jun 17, 2021

Absolutely, Doug. It's time to throw capacity markets for renewables in the trash.
Correction: "long past time". 

There's a fundamental disconnect here, which planners are either too dense or too rearward-thinking to appreciate. The original (2006) purpose of capacity markets on the PJM Interconnection was to finance reliable capacity up to three years into the future, to make sure there will be enough to power the grid. Though solar and wind aren't reliable capacity (we don't know for certain where the wind will blow or the sun will shine tomorrow, much less on June 17, 2024) they've been included in capacity markets - as if unreliable sources of electricity can ever be competitive with the reliable, dispatchable kind.

Now we're seeing what happens when you try to make reliable electricity from unreliable sources: the lights go out. Who woulda thought?

Michael Keller's picture
Michael Keller on Jun 22, 2021

Spot on.

Based on over 50 years in the energy industry, the power markets should not kowtow to politics and environmental radicalism but should be designed with rational underpinnings.

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