Regional transmissions organizations (RTO) may be the most important factor that you’ve never heard of in America’s shift toward a clean energy future.
PJM Interconnection’s 2011 State of the Market Report details how energy market forces in the highly technical RTO system are retiring coal power plants, encouraging renewable energy generation, and stimulating demand response while reducing consumer electricity costs.
Think of RTOs as air traffic controllers of the electric grid, managing electricity generation and transmission over large regional grids to ensure reliable power supply at the lowest possible price. Wholesale power is bid into the system by generators in a competitive auction and purchased for sale to consumers by utilities, with overall demand being filled from the cheapest to most expensive power source.
Enter PJM, the largest RTO in the world, which manages the grid and wholesale electric market for 13 states and Washington, D.C. Its annual State of the Market Report is prepared by an independent market monitor to determine if market forces are working competitively across the system.
Coal is Not King
The 2011 report not only showed the market was working competitively, but also showed that a transition to lower emissions is possible without price spikes. In fact, the total price per megawatt-hour of wholesale power dropped 6.2 percent across the system.
Coal-fired generation suffered in 2011, and will likely continue to experience losses in the future. Electricity from coal lost two percent of the overall market, but the cost of that electricity increased nearly twenty percent, largely due to increased operational costs and environmental regulations requiring emissions control investments.
The costs of compliance are adding up and making dirty coal more expensive, and, thus, less attractive in PJM’s power market. “These investments may result in higher offers in the capacity market, and if units do not clear, in the retirement of some units,” said the report.
This means between 5,764 and 6,936 megawatts (MW) of coal generation may soon be forced to retire, according to the report. PJM lists between 26 and 30 coal plants “at risk” of being priced out of the market — meaning it could soon be dramatically cleaner.
Cost Advantage for Renewables
Conversely, as the market itself makes coal power less profitable, renewable energy sources are gaining a cost advantage and investment is increasing in PJM. 98.2 MW of newly installed wind power capacity was added in 2011, boosting total wind generation 19 percent to 11.5 terawatt hours (TWh), while 15.3 MW of new installed solar power capacity spiked total solar generation an incredible 872 percent to 55.7 GWh.
Demand Response Growing Fast
Demand response, or the ability of customers to cut consumption in response to higher real-time electricity prices when electricity demand is highest, also continued its fast growth across PJM. Nearly 3,000 MW of demand are now registered in the market’s load management program, up from just 560 MW in 2008, and payments to demand response participants topped $500 million.
Demand response not only helps grid operators ensure the lights stay on during peak demand, but also prevents the use of peaking power plants, which are generally much more expensive to use.
Competition Breeds Benefits
PJM’s report underlines the contribution market forces in RTOs can make to the clean energy transition, according to one group of electricity industry stakeholders.
“Competitive outcomes are generating important economic and environmental benefits for consumers in terms of energy efficiency, renewables, and other innovative technologies that contribute to an overall cleaner portfolio of energy resources to ensure the lights stay on,” said Joel Malina, executive director of the COMPETE Coalition. “The goal of a competitive power market is to provide power at the lowest possible price, consistent with cost.”
The group of 622 U.S. electricity industry stakeholders advocate for competitive electricity markets, and recently released a report on PJM’s Reliability Pricing Model. The long-term auction locks in electricity prices three years in advance, and COMPETE’s report cited up to 14 GW of demand response in PJM by 2014/2015.
Critics claim the shift from coal power will undermine the U.S. economy with price spikes and will force power failures, but PJM’s market report clearly proves them wrong and shows how cleaner sources of energy and energy management technology can work across the grid when competitive market forces are applied.