Renewable energy’s future will depend, in part, on what energy policymakers decide about how variable-output wind and solar energy fit into a reliable and efficient electric power market. Despite widespread successes in renewable energy integration across the U.S. and abroad, the issue has become a central focus of policy discussions.
In one of Rick Perry’s first actions as secretary of energy, he sent a public memo that put renewable energy interests on high alert for threats to supportive policies and treatment in electricity markets. The April 14 memo to his chief of staff requested a “Study Examining Electricity Markets and Reliability.”
The memo expressed concern about the “erosion of critical baseload resources” and the “market-distorting effects of federal subsidies.”
It asked for a study within 60 days evaluating baseload dispatch and compensation, evaluating whether and to what extent policies are forcing premature retirements of baseload plants, and providing concrete policy recommendations and solutions.
As the clock winds down on the mid- to late-July expected release date, supporters of clean energy hope to dodge a bullet that many initially felt was aimed directly at renewable sources and the policies that support them.
The memo’s focus on baseload coal generation is consistent with Trump/Pence campaign promises to bring back coal jobs. It may reflect a broad administration position, with U.S. Environmental Protection Agency Administrator Scott Pruitt advocating for “on-site” and “solid” hydrocarbons and recently even suggesting that renewable energy growth could put the nation “at grave risk of brownouts and blackouts.”
While the U.S. Department of Energy (DOE) has only narrow emergency authorities over the grid, the study could potentially be used by Congress as it considers tax reform, state regulatory commissions as they consider generation portfolios, and grid operators and the U.S. Federal Energy Regulatory Commission (FERC) as they consider market rules that affect all electricity sources. Trump has an opportunity for the first time since 1993 to immediately install a majority at that agency, which has broad powers over electricity markets and even some ability to preempt state policies. Perry raised the stakes on April 25 by threatening state preemption.
As reported by Justin Worland for Time, Perry, at an energy forum in New York City, said, “Increased reliance on renewable energy sources like wind and solar might make the grid unreliable, given they only work when the sun is shining and the wind is blowing, creating national security concerns.” He also said the Trump administration might try to preempt state and local governments that use policy to encourage clean energy to address those concerns.
The so-called Perry memo hit the electricity policy world at a very sensitive time, as fundamental changes are being considered and litigation over state policies is escalating.
Owners of gas, nuclear, coal and all resources are suffering from extremely low wholesale power prices, driven by persistent low natural gas prices and flat demand. As a result, nuclear generation owners are asking states for subsidies to keep their plants open. Some owners of gas generation have fought those nuclear subsidies in court and have asked FERC and the regional transmission organizations to administratively raise capacity prices in response. Now, coal plant owners may see an opportunity for their own form of government support.
The memo triggered some sharp responses. Most notably, influential Sen. Chuck Grassley, R-Iowa, from Perry’s side of the political aisle, sent a letter saying, “I’m concerned that a hastily developed study, which appears to predetermine that variable, renewable sources such as wind have undermined grid reliability, will not be viewed as credible, relevant or worthy of valuable taxpayer resources.”
Seven Democratic senators added their own concerns: “This study appears to be a thinly disguised attempt to promote less economic electric generation technologies, such as coal and nuclear, at the expense of cost-competitive wind and solar power.”
On behalf of clean energy industries, the American Wind Energy Association, Advanced Energy Economy, the American Council on Renewable Energy and the Solar Energy Industries Association each offered its own reliability analyses and summaries of others’ research for use in the study, saying, “We believe that, taken together, these reports demonstrate that the U.S. electric power system is more diverse in its energy sources than ever before and, due to the flexible way these resources are now managed, becoming more reliable and resilient as a result.”
The organizations requested the study be opened for public input. They shared materials demonstrating the superior capabilities of new wind, solar and storage plants to provide reliability services to grid operators and the ability of power systems to reliably integrate higher and higher levels of variable resources.
Some interesting voices have challenged the memo’s assumptions. Gordon van Welie, president and CEO of ISO New England, asked, “How do we maintain resilience in New England if we don’t have coal and everyone else says we need coal to maintain resilience? That just doesn’t compute for me.”
The conservative think tank R Street added some insight that so-called baseload is not a reliability service or necessary for reliability; rather, it merely describes resources that tend to be economically dispatched first.
Statements from the CEO of Great River Energy similarly make it clear that Perry’s definition of baseload is inconsistent with certain industry definitions, which are based on economics, not reliability: “In the past, we tended to think of our coal resources as baseload and every other resource being supplemental to that. I would suggest to you that wind is quickly becoming the new baseload.”
As the renewable energy industries gird for the report’s imminent release, there is reason for hope that cooler heads will prevail at the DOE. Perry, himself, is proud of the Texas experience and published editorial pieces as recently as June 7 touting the success of Texas wind. The DOE also has many experienced and capable staff, consultants, and national laboratories at its disposal that have reportedly been asked to provide technical input.
There may also be a focus entirely separate from renewable energy.
For example, the study could show how coal, nuclear and renewables avoid the common mode failures that sometimes prevent gas generation from providing capacity when called upon. It could also focus on electricity market improvements in price formation that would benefit all sources, including renewables, by compensating storage and demand response sources for the flexibility services they provide, for example.
The study could even exonerate renewables from some claims that have been made about reliability and market impacts. For example, it could show that there are no preferences for renewables in transmission and market tariffs and simply advocate for fair treatment for all resources based on the reliability services they provide.
Even if the report makes some critical claims, renewable energy interests can take some comfort that grid operators and FERC, relying on the Federal Power Act, which bars undue discrimination, will generally be disinclined to institute new favoritism for certain technologies that are not based on reliability value.
Finally, it would not be surprising if the study merely touts some benefits of certain resources, as many other DOE reports have done over the years, without requiring any particular actions by any regulatory authority. We will soon find out.
Rob Gramlich is founder of Washington, D.C.-based Grid Strategies LLC, a strategic advisory and consultancy. He oversaw transmission policy for the American Wind Energy Association (AWEA) from 2005 through 2016 as senior vice president for government and public affairs, interim CEO, and policy director. Before AWEA, he was economic advisor to Federal Energy Regulatory Committee Chairman Pat Wood III from 2001 to 2005 and senior economist at PJM Interconnection in 1999 and 2000.