All (Energy) Politics is Local
By Michael Brooks
HOUSTON — The Gulf Coast Power Association’s annual Spring Conference last week began the day after the U.S. Supreme Court declined to hear challenges to Illinois’ and New York’s zero-emission credit programs.
The court’s decision was a stark reminder that individual states are driving changes to the country’s electric generation mix, often to the frustration of the grid operators charged with operating competitive, economically efficient markets. (See Supreme Court Won’t Hear ZEC Challenges.)
“In the absence of a federal carbon-reduction system, states are taking a lot of actions on their own,” Doug Scott, vice president of strategic initiatives for the Great Plains Institute, told the conference, which drew about 460 people to the Hilton Americas in downtown Houston. “Subsidies have been around in power generation, in virtually all forms of power generation, for a long, long time. So that’s nothing new, but the way these are being applied now is something that is new.”
Scott, who served in the Illinois House of Representatives and was later appointed chair of the Illinois Commerce Commission, noted that his state’s ZEC program was less about reducing carbon emissions and more about preserving high-paying jobs at its nuclear plants. Current members of the commission have repeatedly expressed frustration with the PJM capacity market, currently in limbo as FERC labors on the RTO’s proposed revisions to its minimum offer price rule to accommodate state-subsidized resources. (See related story, “PJM MOPR Issue ‘Really Complicated,’” FERC Open Meeting Briefs: April 18, 2019.)
“I can really tell you that anything that a regional transmission organization does is not going to stop a state from doing what it thinks it needs to do to protect its citizens, to protect its businesses, to protect taxpayers and jobs,” Scott said. “In fact, without disparaging my former colleagues, I would be willing to bet a lot of them don’t know what PJM is and don’t understand how the power markets actually operate.”
The tensions between the states and grid operators are “only going to get worse” as states adopt increasingly aggressive renewable portfolio standards, he said. “We’re going to need some kind of dialogue nationally about a coherent way to deal with all of the different measures that states want to take in the absence of any kind of federal policy.”
The lack of national carbon policy also complicates interstate transmission, which many have said is needed to alleviate the oversupply of renewables in certain regions. (See “Hoecker, Demarest Propose Interstate Tx Siting Bill,” Overheard at Transmission Summit East 2019.)
One might think that states seeking to procure more renewable resources would welcome high-voltage transmission projects to import from these regions. But SPP CEO Nick Brown poured cold water on that line of thinking.
“Here’s the biggest issue: The folks east of us don’t want our wind,” said Brown, speaking during the conference’s regular grid operator CEO panel. States want to develop renewables within their own borders, and “solar enables that to happen. … So, I’d love to send our [extra wind] east, but … as cheap as that might be, solar is changing the game because it is now so cheap and can be installed locally and … improve local economies.”
On a separate panel discussing evolving RTO market designs, David Hunger, vice president of Charles River Associates’ energy practice, noted that Western states began building renewable resources in response to California’s demand. “But these states now are ramping up their own targets,” he said. “So, wind power built in Wyoming, for example, is largely going to meet Wyoming state renewable standards.”
Throughout the conference, GCPA ran an app that surveyed attendees while panel discussions took place. A poll during a panel on carbon pricing in wholesale markets found 77% of the audience in favor of the concept — a result that pleasantly surprised panel moderator Burcin Unel, energy policy director at the New York University School of Law’s Institute for Policy Integrity.
“OK, that’s exciting. Um, so, that was kind of unexpected for me,” she said with a laugh.
But it’s going to be a lot harder for a multistate RTO to implement a carbon price than it is for single-state ISOs such as NYISO. PJM stakeholders will vote Thursday on whether to begin an initiative to consider carbon pricing in PJM’s 13-state territory. (See PJM Members Welcome Carbon Pricing Talks.)
“These are political decisions as much as they are economic decisions or environmental decisions, and it’s very difficult to get states to do something that may not be in their own best interests, the way they perceive it,” Scott said. “It’s very difficult to get unanimity from states that have generation mixes, different political climates, different histories, different utilities. I don’t know a magic bullet for that; if there were, I think PJM would have found it already.”
“A big market like PJM … is solving the optimization problem: the least-cost way to meet load given the costs of all the resources,” said Sam Newell of The Brattle Group. “It’s not a mathematically well specified problem to now try and do that optimization when there are multiple views on what the cost function is. So, there’s no perfect answer.” PJM could potentially “draw a loop” around a state that wants a carbon price and apply a hurdle rate, he said, but it would be complicated.
“Implementing a uniform carbon price would be very difficult” in PJM given all the different politics, agreed Jennifer Chen, senior counsel at Duke University’s Nicholas Institute. She said that the RTO’s software would need significant upgrades to account for different state prices.
“How well are the markets prepared in handling the challenges associated with the massive increase in renewables?” asked Judah Rose, executive director of ICF International and moderator of the market design panel.
“I think the broader issue is around multiperiod dispatch and pricing, and that’s not something that I think is implemented anywhere, but I think it’s a great discussion to have given where we’re going,” said Adam Keech, executive director of market operations at PJM. “Because the interest is not just how do we get from point A to point B in the next 10 minutes … it’s how I optimize that over the entire day.
“I think that’s a broader discussion that’s really not being had right now because technically that is a tough nut to crack. But ultimately I think that’s the direction that we need to go.”
“I think with renewables, the one thing everybody should be able to agree on is there are a lot of states and a lot of customers who want them,” said Brett Kruse, Calpine’s vice president of market design. “What’s being mandated or set as a goal by a state or some other entity is being asked for by large customers. So it’s incumbent on the system operators … to figure out how to integrate this stuff and send the right market signals.”