pv magazine: Can you comment on the difference between the DOE grid study’s evidence presented and its conclusions?
Mark Dyson: In reviewing the study and also comparing its results – the final versions to the leaked draft from last month, my take is that the evidence presented on the whole appears to fact based, well presented and balanced.
I think the study does correctly characterize many of the issues that as a community independent grid experts have characterized as key to thinking about the grid of the future – the role of market forces and especially the low price of natural gas as challenging baseload plant economics, the role of market reform in continuing to ensure reliability, and importantly I think the DOE study is right to point out the importance of resilience, and not just reliability as is common. So in general I think the evidence presented and the findings of the study are on whole correct, and I’m happy to see that corrected.
The question was around the difference between the findings and the conclusions. In skimming the conclusion, and reading the recommendations, it does seem that those are a little bit disconnected from the evidence. I think the study does not necessarily provide as full an account of capability of renewable energy and distributed energy resources to provide value to the grid, in particular to provide the reliability services or ERS that the study discusses in length.
The study seems to ignore that. Exploiting that value or leveraging those values from DER or renewable energy, that doesn’t make it to the recommendations. That’s why I worry then that the recommendations, the conclusions of the study are not entirely capturing the reality of the present situation that in general the study presents in its findings.
pv magazine: In line with administration talking points, the DOE study repeatedly states that baseload power is necessary for a reliable grid. Can you comment on this claim, and the actual needs of the grid?
Dyson: I don’t think that claim is supported by the evidence presented. As I was just saying, the study’s recommendations leave out in general the discussion of how renewable energy and distributed energy resources can provide many of the same services as traditional baseload power plants can, and because it ignores the potential for those resources to do that, that doesn’t help support the claim that you need baseload power.
In fact, we’ve seen at state and even national levels in Europe in particular examples of reliable power systems that rely on DERs and renewables, retire baseload power and have even higher reliability without any resiliency issues that have popped up.
Amory Lovins at RMI wrote a really good piece on 14 alleged reasons why baseload power plants should be compensated extra for providing services to the grid. He rebutted each of those 14 reasons and debunked the idea that baseload is the only thing that can supply those services for the grid.
On the flip side of that the positive story is that we are increasingly seeing taht we can do that with DERs and renewables. The upshot is that we’ve seen in demonstrations that all necessary grid services can be supplied by renewables and distributed resources. Some of that is in pilot stage right now, but every single service has been demonstrated.
In particular the study’s claim about fuel assurance is particularly weak when you consider that renewable energy has by definition fuel on hand and isn’t subject to the same risks that coal plants face.
pv magazine: Does this study suggest that the administration will pursue bailouts to keep aging coal and nuclear power plants online? And through what mechanism to you expect support to come about?
Dyson: I think it’s too early to tell. I think you could read the study’s recommendations from two points of view. You could see in them a clear voice of support, or bailouts if you will, to keep aging baseload power plants online. You could also read it as a more cautious endorsement of, as Secretary Perry said in his cover letter, an all-of-the-above strategy.
Fore me I read a few codewords in the study’s language that suggest that is meant to provide an opening to quote-unquote reform market price formation, and to do so by compensating baseload resources unfairly.
I think the top recommendation of the study – you could definitely read as that FERC will try to have some influence in adjusting price formation so that baseload power plants are compensated above and beyond existing signals.
And Neil Chatterjee, the sitting FERC chair, has said that he believes that generation including our existing coal and nuclear needs to be compensated above the value it provides to the system. So any FERC chair basically syaing that the same thing as this top recommendation in the study reads, so to me that suggest that any FERC actions that you see are likely to act on that recommendation, even if they are not supported by the study, in a manner that is favorable to coal and nculear power.
It’s not clear what form that will take. There are a few ways that this could work through ISOs, the technical conference that they had with the ISOs a few months ago – it could go a few different ways, and I’m not confident to comment on that. I am confident that with good reason it will be roundly challenged by the community of experts who have already put forth their dissenting opinions on why these resources don’t need to be bailed out and shouldn’t be bailed out.
These experts – they can point to their own findings, but they can also point to the findings of this DOE study that suggests that same thing. It’s natural gas prices that are eating coal’s lunch. We shouldn’t necessarily be thinking of a round market fix to that issue.
pv magazine: Could this study pave the way for any sort of pro-clean energy reform of electricity markets, including greater valuation of resiliency and flexible generation? And do you expect any such proactive change to come from FERC or other government agencies?
Dyson: I do. Again, the findings of the study could support an interpretation of the recommendations which says yes, let’s value resiliency, let’s value flexibility and let’s do that in a fair way for all resources. Because of what I just said though, and what’s we’ve seen at the federal level from the FERC chair and the secretary of energy, I suppose that most of those interpretations will come at the state level.
One example of how this could look is the DOE report itself finds that over-forecasting demand growth is partly to blame for the challenges to baseload generator economics. So what does that mean? We have about 40 GW of excess capacity in the United States today above reserve margins, so 40 GW of excess capacity above and beyond what we need to maintain reliability. And this is because utilities and system operators have been over-forecasting load growth for the past decade, if not longer.
RMI’s preliminary analysis which we will publish soon shows that by average, if you look across all utilities and system operators, they over-forecast demand growth for about 1% for each year that they look out. So five years out they over-forecast by about 5% what demand growth actually realizes, and ten years out they will over-forecast on average by about 10%.
What does that mean? When you have long-demand resources – and I’ll use the example of the VC Sumner Nuclear Plant which was abandoned by South Carolina utlities. When you need to start building that nuclear plant 10 years before you expect it to run, that means that you need to place bets, really big, 10s of billion of dollar debts for load growth that is going to happen, and if we look at utility averages those bets are on average 10% too high, 10 years out.
That in the South Carolina case has meant that consumers, utility customers have been left holding the bill for bets that go south. The tens of billions of dollars that have been spent on that project to meet load that hasn’t materialized.
Returning to the point about how the DOE study could play out at the state level, I think with increasing recognition of how the system is planned and how these investments are planned, we can start to think we plan for resources, and how we can make bets for resources that are less risky.
Instead of South Carolina utility ratepayers paying 18% of their bill for projects that will never run, we can make smaller bets closer to real time that track actual load growth instead of a forecast 10 years out. And those processes are governed almost exclusively in the United States at the state level. The ISOs have some role to play but often it is some filter, or it is a bubbling up of forecasts for load-serving entities that are regulated at the state level.
So we already have seen leading states put into place processes that take a modular investment approach – smaller bets spread out over time, that can help avoid this over-forecasting peril. The DOE study’s finding that over-forecasting is partly to blame for the challenges that baseload is facing today – states could really pick that up, and say – we have an opportunity to do this better, and avoid the problems that we are facing right now.