How Big is Gridlock in our Electric Grid?

May 10, 2019
Photo: AWEA
Mike Jacobs
Senior Energy Analyst

Progress in electric power, particularly the growth of renewable energy and consumer choice, is looking like gridlock.  Look closer and we can see three fundamental issues: state policy vs. federal policy; changing perspectives on reliability, and how electric grid planning should accommodate the ongoing transition to renewable energy. We even have gridlock in the appointment and continuity of the Federal Energy Regulatory Commission (FERC) that oversees much of the decision making in these spaces.

Transitions need transmission

From the beginning of Nikolai Tesla’s rivalry with Thomas Edison, the choice of energy supplies has depended on the availability of transmission to flow electricity from one place to another. Any new energy supply needs some kind of conductor or transport from the supply to the demand. The larger the cumulative supply, the more pronounced this need. Adding a lot of offshore wind energy, for example, requires a commensurate plan for safely getting that energy into the existing grid. State policies in the Northeast have brought this innovation, (first studied at University of Massachusetts but first adopted commercially in Northern Europe), to the cusp of commercial-scale deployment off New England and Mid-Atlantic coast. So while we now have commitments for significant offshore wind development, the details of how we’ll effectively move that energy to the onshore grid and ultimately to customer demand remains unresolved.

Transmission lines are the infrastructure of renewable energy.  Planning ahead for these lines enables the addition of the clean energy.  We saw this in Texas, and we need to see it again for offshore wind.   Renewable energy is growing rapidly, replacing fossil fuels and reducing carbon and other air pollution every day.  An infrastructure strategy for carbon reduction and the transition to renewable energy should include electric transmission investment.

More about that gridlock: State policy vs. federally regulated markets

Sitting at FERC is a request by PJM on how federally supported markets will treat power plants that are supported by state policies, like the long tradition of state sanctioned monopoly utilities or the decisions of state legislators to promote innovation or continued operation of zero-carbon power plants.  These policies ultimately pave the way for power plants to receive revenues outside of the FERC-regulated markets – either through checks from captive ratepayers or through alternative revenue streams like renewable energy credits (RECs). This decision regarding how to align these policies with the wholesale markets in PJM has been stuck in a regulatory deadlock at FERC since mid-2018 when one of Trump-appointed Commissioners left, leaving a 2 – 2 split in opinions at FERC.

At stake in that decision are these three fundamental issues:

  1. State policy vs. federally supervised market platform: PJM asked FERC permission to discriminate between the old-style, ratepayer-subsidized plants (usually fossil-fueled) owned by state-regulated monopolies (which would be exempt from PJM’s proposed definition of “improperly subsidized”) when applying new financially impactful rules to renewable power plants that have revenues from state Renewable Portfolio Standards and the nuclear plants that have been given additional payments from legislative actions.  PJM seeks to raise the bids offered by renewables and nuclear plants to counter state supports but allow state-supported old fossil plants to bid low so as to keep them in business. While all of these plants are essentially subsidized by state policy, PJM is proposing to penalize one category of power plant while allowing another to operate in the market at artificially low costs that will ultimately be made up by utility customers.
  2. Reliability in a changing supply mix: The PJM management of the capacity market, which provides utilities with enough resources to meet the peak demand in summer is struggling through repeated and continuous reforms that limit or reduce new types of resources.  The capacity market was also changed to incentivize coal- and gas-burning power plants to be more reliable in cold weather. Demand response and renewable energy have been devalued in the various changes, and are targeted by the proposed reform awaiting FERC decision. These types of reform ultimately create gridlock as older, less efficient resources don’t exit the market because they’re being subsidized by ratepayers while new, more cost-effective resources can’t enter the market because they’re not being properly valued for the services they can provide.
  3. This decision affects the planning and growth of transmission, literally the resolution of physical gridlock limiting renewable energy growth. PJM’s rules for transmission planning use the capacity market results to determine where and how much transmission is built for generation. So if renewable energy resources can’t participate in the capacity market, PJM doesn’t build the transmission necessary to transmit renewable energy to customer demand.

The interaction of these issues can be seen in all the U.S. grids to some degree.  The assumptions based on fossil-fuel plants, and the owners of those plants, work against a transition to renewables, demand-response, or energy efficiency.  Differences among the grid operators NY Independent System Operator serving New York, ERCOT serving Texas, and the Midcontinent Independent System Operator serving 15 states plus Manitoba demonstrate some diversity in attitudes about these issues.

Planning for energy around the whole year, not just a peak demand period, is one positive change MISO is exploring.  NYISO approval of transmission that will “help unbottle clean energy” is a model for our policy goals and the role of infrastructure in achieving these goals. In short, the opportunity is at hand to use infrastructure investments – whether roads, bridges, or electric transmission – to unlock opportunities to achieve a cleaner, more resilient future.