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Electricity Markets, Public Policy, and Grid Reliability Paul J. Hibbard NCSL Legislative Summit Boston, MA August, 2017
Electricity Markets, Public Policy, and
Grid Reliability
Paul J. Hibbard
NCSL Legislative Summit
Boston, MA
August, 2017
Page 1Page 1
The Electricity Policy Landscape
▪ Energy production and
consumption have broad
economic, environmental and
consumer impacts
▪ Human health, safety & well-
being
▪ Climate and other pollutants
▪ Economic productivity
▪ Disproportionate impacts on
some
consumers
▪ There is a long history of public
policy in electric utility regulation
▪ Economic development rates
▪ Low-income rates
▪ Resource planning &
procurement
▪ Energy efficiency
▪ Renewables: RPS, purchase
requirements, net metering
Page 2Page 2
Recent Context
▪ Recent attention by federal
officials (DOE Secretary Perry,
EPA Administrator Pruitt)
regarding financial pressure on
and retirements of certain coal-
fired and nuclear generating
units
▪ Questions about the
implications for electric system
reliability and U.S. ‘energy
dominance’
Page 3Page 3
Two Questions
▪ What are the primary drivers of the transition
underway in the electric industry?
▪ Is the transition to a different mix of generating
resources adversely affecting power system
reliability?
Page 4Page 4
Why Markets and Reliability?
▪ Markets are altering the power system landscape
▪ New, efficient natural gas-fired CTs and CCs:
“traditional” capacity technology of choice at present
▪ Dramatic change in relative price: gas vs. coal
▪ Decline in the cost of renewable technologies (wind, solar)
▪ Market pressure on older, less
efficient generating units,
especially for merchant plants
in organized markets
▪ Federal and state policies
contribute to resource mix
changes
Page 5Page 5
Why Markets and Reliability?
▪ Whenever change is underfoot in
the industry, the reliability flag is
raised
▪ Reliability is paramount: affects
human safety, health & welfare,
and economic productivity
▪ Changes in the power system
infrastructure must always be
monitored for potential reliability
impacts
▪ It is always useful to examine
the implications for reliability of
various types of changes – but
that is not the same as
concluding (a priori) that
changes will lead to reliability
outcomes
Page 6Page 6
Industry Transition – What?
▪ Oldest (natural gas and
coal) = retiring
▪ Previously, gas
▪ More recently, coal
▪ Some oil, nuclear
U.S. Generating Capacity Retirements by Year
Page 7Page 7
Industry Transition – What?
▪ Since 2000, major new capacity
added
▪ 300+ GW, gas
▪ 100+ GW, renewables
▪ Renewables: 10% of MWh mix
(3-2017)
U.S. Generating
Capacity Additions
by Year
U.S. Wind and Solar
Generation Output by Year
Page 8Page 8
Coal
47%
Gas
22%
Nuclear
19%
Water
7%
Oil
1%
Wind
0%
Solar
0%
Other
3%
Source: SNL Financial.
Coal
31%
Gas
33%
Nuclear
21%
Water
6%
Oil
0%Wind
6%
Solar
1%
Other
2%
Source: SNL Financial.
Industry Transition – What?
2005
2016
▪ Result: a more diverse resource mix
▪ Coal: from about half to about a third
▪ Gas: from about a fifth to about a third
▪ Renewables: from negligible to 7%
▪ The rest about the same
▪ Looking forward: more of the same
▪ Natural gas, renewables dominate market interest
▪ Economics of displacement have not changed
Page 9Page 9
Industry Transition – What?
▪ Organized RTOs operate in
regions with different
electric industry structures
▪ Some RTO regions
(e.g., ERCOT, ISO-NE,
NYISO, PJM) have
significant merchant
generating capacity
▪ Other RTO regions
(e.g., CAISO, MISO,
SPP) have significant
generating capacity in
utility rate base and/or
long-term power supply
contracts
▪ Generating units in these different RTOs face different financial/
economic pressures from prices in RTO-administered markets
▪ Merchant units in ERCOT, ISO-NE, NYISO, PJM are most exposed to
changes in energy prices
Page 10Page 10
Industry Transition – Why?
▪ Gas prices plummeted (primary driver)
▪ Existing underutilized gas-fired
generating capacity increased output
▪ New efficient gas-fired capacity
added
▪ Locational energy prices and
revenues drop
Page 11Page 11
Industry Transition – Why?
▪ Impact of lower gas prices
(see last slide)
▪ Impact of adding
renewables
▪ Pushes supply curve
out
▪ Lowers electric energy
prices and revenues
(relative to no
renewables)
▪ Impact of lower demand
▪ Moves demand curve in
▪ Lowers prices (relative
to higher demand
growth)
Page 12Page 12
Relative Impacts of Factors (Illustrative)
-$30.00
-$25.00
-$20.00
-$15.00
-$10.00
-$5.00
$0.00
5 GW Wind Addition Decrease in load Decrease in Gas Prices$
/MW
h
Note: Impact of wind addition demonstrates impact of adding 5 GW of wind to all of PJM on marginal electricity price for all of PJM . Decrease in gas price
shown between 2005-2008 and 2009-2015 periods in PJM East.
Source: SNL Financial.
Page 13Page 13
Power System Reliability
▪ Essential Reliability Services (ERS)
▪ Needed to preserve reliability, and provided by various technologies
▪ Terms like “baseload” are old-fashioned, no practical meaning from a reliability perspective
▪ ERS Include
o Frequency
response
o Voltage support
o Reserves, load-
following
capability
o Black start
capability
▪ Critical: ability of
the mix of
resources on the
system to provide
sufficient ERS
▪ Many different
resources offer
different kinds of
ERS
Frequency Control / Ramping
Voltage Control
Reserve Capacity
1 DayNotes and Sources:
[1]
[2]
[3]
Voltage Control
Cycles
Reserves are staggered by response time such that there
is backup generation for the grid at various response
times (seconds, minutes, tens of minutes)
Frequency control ensures that the
BPS is synchronized and stabilized for
normal and contingency conditions.
Frequency is controlled in stages that
range from seconds (inertia) to hours
(spinning reserves). AGC and
operational flexibility of generation
resources are critical to maintain
frequency control.
Short-run regulation ensures
supply meets demand every
minute while load following
ensures plants follow the trend
in demand throughout the day
Spinning Reserves
Kirby, Brendan, "Ancillary Services: Technical and Commercial Insights," July 2007.
Adapted from Kirby, Brendan, "Potential New Ancillary Services: Developments of Interest to Generators," August 2014.
NERC, "Special Report: Ancillary Service and Balancing Authority Area Solutions to Integrate Variable Generation," March 2011.
Timescale of Grid Reliability Functions (< 1 Day)
Seconds Minutes Hours
Non-Spinning Reserves
Load Following
Regulation
Governor's/AGC Response
Frequency Responsive Reserve
Contingency Reserves
Voltage control is needed consistently
throughout the day. It is location-specific
and requires reactive power control from
reactive sources to maintain.Inertia
Page 14Page 14
Technology Reliability Attributes
Comparison of Flexibility and Reliability Attributes of Power Generating Technologies
Nuclear Coal Gas Wind Solar Hydro
Construction Duration (Years)16 6 3 3 1 3
Heat Rate (Btu/kWh)110,452 10,062 6,682 (CC) - 10,033 (CT)
Planned Outage Rate (%)16% 12% 5% (CT) - 6% (CC) 0.6%2 2%2 1.9%2
Forced Outage Rate (%)14% 8% 3% (CT) - 4% (CC) 5%2 0%2 5%2
Minimum Load (%)1100% 50% 0%
Frequency Response3
Voltage Control3
Regulation Ramp3
Contingency Ramp3
Load Following3
Not Fuel Limited3
On-Site Fuel Inventory3
Flexible Cycle3
Short Min. Run Time3
Startup/Notification Time <30 Min.3
Black Start Capable3
Notes and Sources: Full Capability
[1] "2016 Annual Technology Baseline," NREL, 2016. A base year of 2014 is provided for all results. Partial Capability
[2] "Cost Report: Cost and Performance Data for Power Generation Technologies," NREL, February 2012. No Capability
[3] "PJM's Evolving Resource Mix and System Reliability," PJM, March 30, 2017.
Page 15Page 15
Reliability Assurance
▪ There is an extensive network of laws, regulations, procedures, and
entities that work to ensure reliability
▪ FERC, DOE, NERC, ISO/RTOs, utilities
▪ Market participants and owners of generation, transmission and distribution
▪ State regulatory agencies
▪ Fuel supply utilities and companies
▪ These entities continuously evaluate reliability
▪ Ongoing, and in response to major storms and other reliability events
▪ With an eye towards the future – countless studies and analyses of (1)
past events, (2) regulatory changes, and (3) future system conditions
▪ Annual and seasonal assessments of reliability, as well as evaluations of
reliability threats
Page 16Page 16
Observations
▪ Markets
▪ Market Forces are Driving the Change in the Generation Mix,
to the Benefit of Consumers
▪ By far, the dominant driver of financial/economic pressures on
generating units that depend upon revenues in RTO markets
= low natural gas prices
▪ Consumers are benefitting from low gas prices (and the
resulting lower wholesale electricity prices)
▪ Other, lesser drivers = flat demand and the introduction of
renewable generation
▪ With few exceptions, the retirement of older, less efficient
generating assets is a natural outcome of efficient market
operations
Page 17Page 17
Observations
▪ Reliability
▪ The Transition Underway in the Electric Resource Mix is Not
Harming Reliability
▪ Many types of resources on the system have a variety of attributes
that provide essential reliability services
▪ What matters is the portfolio of attributes available to grid operators
▪ “Baseload” is not a useful word to define generating resources with
different attributes relevant for reliability
▪ Other recent evaluations find system reliability trending upward; no
degradation of reliability from changing resource mix
▪ NERC notes a need to continue to study integration of variable resources
▪ NERC finds that reliability is the same or improving along several key
reliability metrics (see NERC, State of Reliability 2016, May 2016)
▪ Studies by PJM and others on the changing resource mix indicate the system
is handling transitions well
