Getting Renewables to the Consumer – PJM and FERC Aren’t Helping

January 16, 2020
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Mike Jacobs
Senior Energy Analyst

Electricity is almost always invisible. Same with the workings of the power grid. But a new decision on energy policy by the Federal Energy Regulatory Commission (FERC) is pulling back the curtain and picking a fight with just about everyone just when popular demand for clean energy is pushing our energy system to adapt and grow. For the business types, think of the grid as a trading platform – the rules set who is able to do business on the grid.

All supplies need a grid

The recent FERC decision bashing state policies to favor PJM’s capacity market forces the role of transmission into the light. FERC’s decision also requires a new look at how grid expansion and integration of renewable energy work. FERC rules that PJM’s capacity market can only operate if PJM sets the prices for supplies that have revenues or benefit from state policies, such as the Renewable Energy Standards or utility rates. This is a drastic sweeping change for every state in PJM’s region, and all new energy supplies will face this scrutiny. New renewables seem to have been targeted.

A robust power grid (i.e. the wires for local distribution, and the regional, interstate transmission) makes high levels of renewable energy possible. When I added 24 solar panels (6 kW DC) to the roof of my house, we doubled the capacity of the line from my house to the street and modernized the circuit box in my basement where all my electric lines meet. This is a real microcosm of how the energy system changes with new investments adding new supplies. My rooftop solar needed an adequate connection to the relatively stronger grid along the street.

In many ways, this is repeated for larger additions for our clean energy plans. The renewable energy goals of 29 states, and an increasing number of cities and communities, as well as 221 companies with 100% renewable goals, rely on the grid. Upgrading the grid is an urgent part of meeting these goals.

New rule makes a hard thing even tougher

The FERC decision for PJM makes a bad situation worse. Transmission planning in the U.S. for meeting the growth in renewables is far from adequate. Practices vary, but in the U.S., there is an absence of leadership on preparing the grid infrastructure for the increases in renewable energy set in state renewables laws. The FERC decision makes state-supported renewables invisible to PJM transmission planning, because PJM uses the capacity market to track the needs for transmission.

Maybe an analogy using highways can illustrate the problems in transmission planning, and how bad this FERC decision is for states and companies to prepare for a renewable energy future.  Suppose a community is adding 1000 new homes. While the buildings will have sidewalks and driveways to connect to the existing transportation systems, planners do not add new lanes to the roads. Instead, the added travelers’ vehicles are assumed to replace or add to the traffic already using the transportation system.

The highway as analogy

For electric supplies, there is an analogy for “driveway” which is the connection from the new generator to the existing grid. In the competitive electricity market, the idea that you build your connection to the grid, but there won’t be more network capability (like there won’t be a new lane built on the highway), is analogous to the “energy-only”, or “minimum interconnection” standard. That is, the new electricity supply competes with the old sources to use the grid and deliver to the customers.

In this highway analogy the impact on congestion might be minimal if the 1000 new vehicles are spread around the city and its environs. With some diversity in patterns of use, some shifting the time of use of the system, all is OK. Same with electric power supplies. But if that 1000 units are all in one place, or outside of town in the same direction, then there will be traffic problems without some upgrades to connect that area better. This is true for vehicles on roads  and windfarms or large solar projects on the transmission system. Often, a lot of wind turbines are planned where there is a lot of wind, and this scenario becomes real.

For windfarms, these are not minor issues. Picking a good location and selecting the minimum interconnection standard could save $100 million, which would likely make or break the economics of that windfarm.  Solar project developers have found grid limits, too.

When the grid gets crowded

However, congestion on electric transmission can mean lower prices or “curtailment” of generation. When there is more energy available than the demand on one side of a bottleneck, prices will fall to push supply back into relative balance with demand. More transmission allows the supply to serve more demand. This effect is not hypothetical. West Texas saw prices at zero and windfarm curtailments until the new transmission lines for the area were built.

In PJM, new generators can pay for additional grid carrying capability to be built in addition to the simple connection to the grid – like adding a new lane to the highway in my analogy above. This would make the energy “deliverable” at the peak time of the year, and is a requirement for generation that wants to be included in the PJM capacity market. That would be very helpful to avoid the new generation being curtailed, or prices being low in a bottleneck.

FERC’s added pain

Now, here is where the FERC decision adds a kick in the gut of new renewable energy. The transmission that we want to keep the renewables flowing will not be kept open by PJM for generators that do not succeed in the PJM capacity market. PJM planning does not recognize the capacity rights (i.e. deliverability) for generators that do not win a place in the capacity market. So if these new rules exclude renewable energy from the capacity markets – even though renewables contribute to meeting our capacity needs – the transmission system won’t be updated to ensure that new renewable energy can be delivered to consumers.

Doesn’t have to be this way!

Transmission planning doesn’t have to leave consumers isolated from low-priced energy from renewables. Important examples where U.S. grid operators are choosing to be helpful instead of PJM’s obstructing policy should be read and understood by anyone looking ahead to a modern grid.

The Mid-Continent System Operator (MISO), grid operator across the central U.S., approved $5.2 billion for 17 transmission projects (collectively known as the Multi-Value Projects) in 2011.  MISO had both an explicit goal to enable the region’s growing demand for renewable energy, and a reduction in consumer costs. Analysis at the time estimated the benefits would outweigh the costs by more than 2-to-1. In its latest review of the projects (2017), MISO estimated the economic benefits would produce between $2.20 and $3.40 for every dollar invested, equating to tens of billions of dollars in consumer benefits.

Texas grid operator ERCOT demonstrated how to respond to a single state’s policy direction. The state recognized that transmission would be needed for the development of renewables, and set out a process for getting transmission built in advance of the renewable generation. Texas continues to lead the U.S. in wind development, and this experience with transmission is a widely referenced model.

MISO and ERCOT are continuing to work on future needs for renewable generation, lower consumer costs, and grid reliability. New York’s grid operator is launching a full-scale examination of a “Grid in Transition” to understand the decarbonization of the economy, and impacts on the reliability and demand of the electric power system.

Every product needs a path to market. In the agricultural world, “market roads” provided farmers the route to match supply with demand. Roads, highways, transmission: these are all part of the modernization of our energy system.