Another Reason Energy Costs are Higher in Winter

December 11, 2020 | 8:30 am
Jyri Engestrom/Flickr
Mike Jacobs
Senior Energy Analyst

The US Energy Information Administration recently reported what many have seen: the Northeast has many newly built gas generators. What is a bit harder to see is that the rules of grid operator PJM that prevent generators from withholding their true capabilities are either not written, or not enforceable.

It’s certainly not the laws of physics that made this happen—this is an issue with the governance of the wholesale power markets.

UCS will bring this to light this week at PJM’s “open mic” workshop about the process for connecting new, competing supplies to the grid serving 13 mid-Atlantic states and D.C.

For UCS, this is not the first time we’ve raised questions about PJM underestimating supplies or capabilities in colder weather.

Connections determine limits

Deep in the details of how the electricity market rules are written and enforced, we find failure of the market and self-governance to do the right thing. Take note of yet another example where reliance on the market does not protect reliability of the grid or customer interests: Energy suppliers are neglecting to offer up their supplies, and no one in charge is asking the right questions to protect electricity reliability and consumers when the market fails to provide.

The formal process to attach a new power plant to the grid starts with a request describing the new power plant, so that the grid operator can study the transmission impacts. In this process, PJM’s form asks new generators to describe the upper output limit of the planned new power plant in four different ways—reflecting winter and summer conditions—as well as how much generation the owner wants to qualify for market participation. Once this request is made, it creates a limit or cap on how much power the plant can generate at a time so that the electricity grid can be safely operated with the actions of all sorts of users.

Here’s how that hurts us in the winter

From a physics perspective: Colder weather allows a gas-fired power plant to operate more efficiently, and at higher output. If that capability is used, consumers would see more supply from the same power plant, with lower costs. Other Northeast grid operators New York ISO  and ISO-New England succeed in getting plant owners to acknowledge this. Both of these grid operators use higher winter ratings for power plants, which allow them to provide their service area more electric power in a way that is less costly than using additional power plants and also less polluting. Two reasons this creates savings: starting a plant that has been idle costs thousands of dollars, and each plant is more polluting as it warms up. (For more, see a recent discussion by my colleague Mark Specht.)

The physics of cooler air make power plants more efficient.  See the rise in output and decline in heat rate in this chart of temperature effect on a gas turbine.

Performance curve for combustion turbine with improvement as ambient temperature declines, from GE.

Supplies that are denied by the owners capping the output would be less expensive because they may avoid a plant start and they use less fuel. Absent these supplies, which look to be 3,000 to 5,000 MW in PJM, more expensive generation is called upon by PJM to meet the demand. This is more expensive to do. While the higher expense of this action is passed on to consumers via their electricity bills, profits gained from this move are higher for the generation owners due to higher costs inflating the price in the market.

Why is this allowed to happen?

The PJM interconnection process asks natural gas generators for their output in winter conditions, as well as in summer conditions, to provide access to the full range that the manufacturers of the generation equipment could offer from these plants (as shown in graph above of temperature performance).

PJM also asks generator owners for the capacity injection level, which is limited to the output of the plant at 90o F. When the newly built gas-fired generation in PJM came to this process, 80% of them requested that their maximum facility output, their winter output, and their non-firm energy output all be limited to the lower 90o F number, regardless of the temperature adjusted performance offered by the equipment. Looking at the publicly available information, at least 24,000 MW of gas generation on-line now and 5,500 MW more under construction requested caps at the summer 90o F output at all times. See examples from the public information below. The missing supplies from these decisions (10-15%) are between 3,000 and 5,000 MW, varying with temperature.

What other benefits are lost?

Grid operations in really cold weather has many constraints and challenges. Grid reliability can be helped with better recognition of cold weather capability in planning and in operations.  PJM could start by improving their process on winter capacity injection rights. This has been previously approved by FERC for PJM wind farms and could be expanded and made permanent. More recognized winter capacity will help in carbon reduction efforts to replace fossil fuels with electric heat pumps for heating homes and buildings, which increases grid demand for electricity in colder weather.

Some the PJM gas generation that requested no higher output than the summer capacity levels.

Solar can be helped, too. Larger amounts of solar on the grid bring attention to daily and seasonal cycles, and the needs to increase supplies in response. The “duck curve” is most pronounced in springtime, when temperatures are cooler. The output that gas generators have denied from the market would be ideal in the near-term as we learn to fully replace our fossil system with renewables.

Is this a governance problem?

Unfortunately, we know from experience that winter supplies are not forefront in the minds of the generating plant owners. The PJM stakeholders and the PJM staff have placed considerable emphasis on the meeting the summer demand with supplies, and apparently left to the market to decide if the generation owners will provide the information, and then supplies, from cooler weather ratings for the generation. These decisions determine if PJM will run the grid more economically and increasingly more reliably in the ~300 days a year when the weather isn’t at peak.

All indications are that we have allowed self-interest, rather than the laws of physics, determine whether society can have lower costs and less pollution.

When we look at how decisions are made in PJM, there is a concentration of influence held by a small number of stakeholders. The rules adopted and defended in the stakeholder process are those preferred by the owners of existing generation. The PJM Board oversees that process, but it hasn’t shared publicly minutes, agendas or even meetings dates as it consents to these decisions made by the committees. At the last stage, where government approval should protect the public interest, FERC has a pattern of giving deference to PJM’s process.

The US needs to watch the costs and reliability with the changing mix of energy supplies. Problems stem from the rules and governance at each level of the industry’s regulatory structure, with unfortunate impacts to consumers and grid readiness. At the wholesale level, a philosophy of self-governance rules in an industry with externalities, monopolies, difficulty for new entry and high capital costs. Do we really have the ways and means to adapt to a low-carbon energy mix when the keys to the electricity market are dominated by existing utilities that operated as monopolies and are not checked in their pursuit of their self-interest? More to come on this question, it seems.

About the author

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Mike Jacobs is leading the Union of Concerned Scientists’s work on electricity markets and regulatory reform. He develops proposals in an effort to shape federal, regional and state electricity markets, regulation and policies to encourage the expansion of renewable energy resources and the reduction of coal-fired generation.