Last week, the US Department of Energy (DOE) released the “Staff Report to the Secretary on Electricity Markets and Reliability,” requested by Secretary of Energy Rick Perry. While expectations were high that the report would link the rise of renewable energy to the shutdown of coal fired power plants, the report instead discussed the myriad of factors affecting electricity markets today, including the broad availability of low priced natural gas that has allowed existing and new gas-fired generation to more effectively compete against coal. In addition, the report also points out that the majority of coal generation that has shut down was the oldest, least efficient units, many of which had determined years ago that it was uneconomic for their owners to add emission controls to comply with the Mercury and Air Toxics rule (MATS). Coupled with the rise of utility-scale wind and solar projects, gas-fired power plants have been able to make up the difference.
The report also highlights a fundamental shift to a lower growth in electricity demand, a factor which should not be overlooked. While there was meaningful demand destruction associated with the economic recession in 2008, the period has seen lower annual rates of electric demand growth than prior to the recession. This isn’t because manufacturing jobs haven’t returned but because much more energy efficient technology has been deployed, holding electric growth rates to more modest levels.
Allowing the market to drive the replacement of less efficient generation with cleaner and more efficient generation technology while also deploying more energy efficient technologies that use less power is the right thing for consumers. As the report points out, there are ample mechanisms in place for grid managers to intervene to ensure reliability. Expertise in integrating renewables into the grid, forecasting that output, and lining up generation resources to load follow has improved significantly. Growth in energy storage will only improve the ability to rely on a greater percentage of renewables. The high operating costs of nuclear energy are mostly driven by safety considerations and while nuclear plants should be rewarded for the same contributions renewables make to clean air and avoided greenhouse gases, we should also recognize that the management of nuclear waste is a real and unresolved issue that renewables do not contribute to.
The electric generation industry has experienced political intervention since its earliest days. For years, incentives were designed to bring electricity to underserved areas and reduce costs to consumers by checking the power of monopolies. Recent incentives have been more about encouraging generation resources that provide environmental benefits not otherwise recognized in the market. The DOE report urges the federal government to make licensing and permitting faster and cheaper for facilities such as nuclear, hydro, coal, advanced generation technologies, and transmission. While I expect the current Administration will continue to try intervene where they think they can reduce the economic impact of this transition to cleaner and more efficient generation, let’s hope they carefully read the report that they commissioned – it highlights a generation marketplace that is already working pretty well.