Experts Conclude Shifting US Power Mix Does Not Endanger System Reliability

Two months after newly-minted US Energy Secretary Rick Perry sought answers about the reliability and market rules of the US electricity grid, a new report by Analysis Group has concluded that there is simply no evidence that the changing mix of the United States’ electricity sector will affect system reliability.

Back in April, Energy Secretary Rick Perry penned a memo (PDF), directing his Chief of Staff to “initiate a study to explore critical issues central to protecting the long-term reliability of the electric grid” and using the full resources of the Energy Department. Secretary Perry ordered the report to be completed 60 days from April 19, which means we’re now right on top of expecting the report to drop.

A month later, four national business groups representing US renewable energy interests submitted materials to the Energy Secretary in an attempt to inform him of the importance and value of renewable energy sources and their contribution to protecting electricity reliability in the United States. The four groups — Advanced Energy Economy (AEE), American Council on Renewable Energy (ACORE), American Wind Energy Association (AWEA), and Solar Energy Industries Association (SEIA) — each penned a separate report and expressed their regret that the Department of Energy had ignored calls for “an open and transparent process for the review of reliability and electricity markets.”

In the cover letter penned by the four groups, they write,

“It is in the spirit of common purpose that we express our disappointment that the Department has apparently chosen not to make this review — which as outlined in your memo has the potential to upend energy markets around the country — public and open to input from industry, grid operators, state regulators, and other key stakeholders.”

Now, expecting the DoE’s report to drop any day now, a new report by Analysis Group — conducted on behalf of the Advanced Energy Economy and American Wind Energy Association — entitled Electricity Markets, Reliability, and the Evolving U.S. Power System, has concluded that the shifting nature of the US electricity sector does not endanger electric system reliability. Further, Analysis Group concluded that it is market forces — primarily the rise of low-cost natural gas and a flat demand for electricity — that are behind the retirement of coal and nuclear plants across the US, and not federal and state policies supporting renewable energy development.

Shares of Total US Net Generation by Fuel: 2005 vs. 2016

“It is a common occurrence for the issue of reliability to be raised when market, technology or policy changes are affecting the financial outlook of different segments of the electric industry,” the authors of the report began.

“Recently, some have raised concerns that current electric market conditions may be undermining the financial viability of certain conventional power plant technologies (like existing coal and nuclear units) and thus jeopardizing electric system reliability. In addition, some point to federal and state policies supporting renewable energy as a primary cause of such impacts.

“The evidence does not support this view.”

“The transformation now under way in the electric power system is driven primarily by market forces,” explained Susan Tierney, senior advisor, Analysis Group, and one of the authors of the report. “Low natural gas prices, technology changes, and flat demand for electricity have been putting financial pressure on and leading to the retirement of older, less economic power plants. This is a natural consequence of market competition. The result is a more diverse set of energy resources on the grid that is being capably managed in a way that provides reliable electric power.”

The report, which is available to download from here, deals specifically with two fundamental questions Analysis Group determined were among the most important in public debates among those within the electricity industry, regulators, stakeholders, and practitioners;

• What exactly are the primary drivers of the transition underway in the electric industry?
• Are the changes impacting the mix of generating resources in a way that could undermine power system reliability?

Among the key findings of the report, beyond the role of market forces, were lesser factors such as the rapid growth in deployment of advanced energy technologies, and state policies supporting these technologies. However, the report concluded that these factors are secondary to market fundamentals. Additionally, issues such as ageing resources like old nuclear and coal plants are obviously at play in these technologies’ retirements, whereas many advanced energy technologies are actually providing reliability benefits, specifically through diversifying the electricity sector, and by providing important reliability services to the grid.

“The electricity system in the United States is stronger than it’s ever been,” said Graham Richard, CEO of AEE.

“Thanks to innovation and smart policy, we have a more diverse fuel mix, a more reliable grid, and lower electricity costs. The Analysis Group report highlights how advanced energy technologies are helping to modernize the grid and how grid operators are well equipped to manage this market change. As DOE finalizes its report on reliability, we hope the Department will incorporate these key findings, which reflect the true state of the grid.”

“Like DOE, we wholeheartedly agree that reliable and affordable electricity is essential,” added Tom Kiernan, CEO of AWEA.

“Analysis Group’s report finds that wind and other advanced energy resources, driven by markets and technological advances, are improving electric reliability and reducing costs. Past dependence on a few fuel sources has given way to a more diverse grid, which is more robust and resilient. We think this analysis will be useful for DOE’s study, and we look forward to working with state and federal policymakers to implement market-based policies that will provide consumers with even more reliable electricity at lower cost.”