Houston Chronicle: Don’t mess with the Texas electricity market

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Our friend Matt Welch with Conservative Texans for Energy Innovation makes a strong case in the following commentary for the ability of competitive markets to respond to peak demand periods through real-time pricing better than capacity markets. You can find the original in the Oct. 24 edition of The Houston Chronicle.

Given the rhetoric centered around electricity in Texas this summer, one could be forgiven for thinking that the sky, or at least the power lines, were literally falling down. So far, the Texas electricity grid has been described as communist, drunk and a game of chance, just to name a few of the more polite jabs.

The truth is that the most efficient, transparent and competitive electricity market in the world operated beautifully this summer, as true markets do when given the chance. Yes, it got hot this summer, like it always does, and yes, prices in the wholesale electricity market got high, very high!

But any freshman taking Economics 101 can tell you that when supply and demand get tight, the correct market response is for prices to go up. Similarly, when electricity market prices go up, that sends a signal that power is valuable and worth investing in.

Some folks are pointing to the high prices this summer and saying that something is broken. But that is not the case. On the contrary, that is how the Texas electricity market is intended to work. The Texas grid operates as an energy-only market which means that power plants generally are only paid when they produce energy. There are other electricity markets that pay power plants to simply be there, even if they are never called upon. But that is not how we do things in Texas.

Given Texas’ market structure, power plants — particularly plants that run only a few hundred hours or less per year when demand gets really tight — rely on those few high-priced hours to make enough money to stay in business. These high-priced hours are a purposefully designed feature of the Texas market. They encourage companies to invest and make sure Texans aren’t paying them for nothing.

Texas consumers rarely notice the workings of the wholesale market, and most simply pay a flat rate for electricity no matter what time of year or day. The quiet efficiency of Texas’ wholesale market is the reason prices in Texas generally are low and have been for a while, which is good for Texas business and consumers alike.

A few long-term trends came together this year to give us the summer that we had. First, the decade-old fracking revolution has driven down the cost of natural gas, and because such a large share of electricity in Texas is generated by gas-fired plants, the gas glut created lower wholesale market prices. In fact, a 2016 study showed that about 90 percent of the cost declines in the Texas electricity market were due to persistently low natural gas prices.

These lower prices meant that some older, less competitive generation assets — especially coal and older gas plants — have retired. This turnover is good for the system; it means newer, more efficient, cleaner, and cheaper resources are able to take their place.

The retired plants were relics of a bygone era when we had to build massive power plants to achieve economies of scale to make their electricity cheap. These days, we build them smaller which makes them easier to finance. While retirements of old plants reduce electricity capacity, new plants often add it back. Investments in new-generation resources do not happen overnight, so we may be a bit short at times, but any shortage should be temporary. For example, by next summer, ERCOT’s reserve margin (the buffer of excess electricity available over projected peak demand) is scheduled to be much larger than it was this past summer because of new energy source projects coming online.

Texas’ electric grid operator, the Electric Reliability Council of Texas has proven it can handle this situation. ERCOT took discrete, well-planned steps to be sure the lights stayed on as reserves tightened. Texans barely noticed and the economy didn’t miss a beat.

Some vested interest groups have tried to declare defeat and muddy reality, blaming technologies such as wind for perceived market shortcomings. They conveniently leave out that most days wind performed as ERCOT expected while gas plants built to provide almost 5,000 megawatts of energy to the Texas grid (enough to power about 1.3 million Texas homes in the summer) failed to show up on a day that ERCOT expected to hit a new peak demand record.

The Monday-morning quarterbacks throwing shade on the system have no real alternative to suggest. All they can offer is more government regulations by bureaucrats telling companies how to operate their business or a system that forces customers to pay for power plants they may never need or use. They advocate returning to a lumbering, less efficient, and more clunky dinosaur of a system.

The Texas electricity market is still young relative to electricity as a whole. Those in charge of the system have made tweaks that should make the market more inviting for investment while keeping the open-for-business free-market ethos that reflects Texas’ way of doing things. That’s the vibrant, competitive energy system that Texas needs and deserves. And as this summer showed, our system works.

Welch is the state director of Conservative Texans for Energy Innovation, a statewide organization that promotes free enterprise, increased competition and less government regulation in our energy economy.

E&E: FERC proposes changes to Carter-era law promoting renewables

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From Greenwire: An energy law passed during the Carter administration to promote the expansion of renewable energy was opened for reinterpretation today by the Federal Energy Regulatory Commission.

FERC issued a notice of proposed rulemaking on the Public Utility Regulatory Policies Act (PURPA), with Chairman Neil Chatterjee saying the law is prime for an update to better reflect the realities of modern energy markets.

"We have seen tremendous technological advancements in renewables, increasing sophistication in competitive electric power markets and abundant supplies of domestic natural gas," Chatterjee said. "It's time to modernize the commission's implementation of PURPA to reflect those significant developments."

Among potential changes to the 1978 law, the commission will consider giving states more flexibility in how they set power rates from qualifying renewable energy facilities, allowing a 95% reduction in the size of qualifying facilities and setting up a tiered approach to the distance between them.

Read the full story in E&E Greenwire.

Competitive retail markets are delivering lower power prices

We’re proud to be considered among the “certain factions” seeking to implement or expand retail competition. Source: S&P Global.

We’re proud to be considered among the “certain factions” seeking to implement or expand retail competition. Source: S&P Global.

A new report from S&P Global finds that residential prices have risen by less than the national average increase of 53.6% in the 14 states where electricity prices are competitively determined for all retail customers. The study compares prices from 2010 to 2018 in states with restructured markets with states with partially restructured and regulated electricity markets.

The number of jurisdictions with residential electric prices below the national average was unchanged for partially restructured markets and was little changed for regulated markets when comparing 2018, 2010 and 2000, according to S&P Global. In Tier 1 states - those with competitive retail pricing - there were six jurisdictions with lower than average prices in 2018 compared to three in 2010 and four in 2000.

Read the full report at S&PGlobal.com.

ICYMI: What’s Behind the World’s Biggest Climate Victory? Capitalism

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Worth your time. The Bloomberg team did a deep dive on Sunday on what’s driving growth in the renewable energy sector.

“The market triumph of renewable energy marks the biggest victory yet in the fight against global warming. Solar and wind are proliferating not because of moral do-gooders but because they’re now the most profitable part of the power business in most of the world. An industry that once relied on heavy subsidies and was propped up by government mandates is now increasingly standing on its own.

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“Solar, wind and hydropower resources combined generate more than a quarter of the world’s electricity. As a recent United Nations report put it: The renewable energy sector is “looking all grown up.

“Last year alone, global investments in renewable energy hit almost $273 billion, according to a report by BNEF, UN Environment and the Frankfurt School. That’s three times the estimated spending on coal- and gas-powered generation. Electricity prices, meanwhile, plunge below zero at times in solar-rich Germany and California and wind-rich Texas, sending a signal to generators that they need to back off so they don’t stress the grid.

“Low costs sparked a clean-power frenzy that has quadrupled global renewable energy capacity to 1,650 gigawatts within the past nine years—more than every power plant in the U.S. combined. From Western Europe to China, solar and wind are beating out fossil-fuel plants without subsidies.”

Check out the full story and some excellent graphics at Bloomberg.com.

Storage holds the key to unlocking more renewable energy

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Energy Central looks at the opportunities for expanding renewable energy deployment through the growth of battery technology. The combination of more efficient storage and solar energy is changing the game for both utility scale, retail and home generation projects. Battery technology is advancing at a rapid pace. Batteries are getting smaller, more efficient, and more affordable, giving solar generators the ability to capture the sun’s energy for later use. Energy Central pulled some interesting data together on battery deployment rates and falling solar costs. Check it out at EnergyCentral.com.

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And for more information about the growth of storage, check out the Energy Information Administration’s outlook for utility scale storage capacity through 2023.

“As of March 2019, the total utility-scale battery storage power capacity planned to come online through 2023 is 1,623 MW. If these planned facilities come online as scheduled, total U.S. utility-scale battery storage power capacity would nearly triple by the end of 2023” - EIA.

Read more at EIA’s Today in Energy.

Buffalo News: New York electricity consumers need more choices

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Check out our letter to The Buffalo News in support of competition in New York state’s residential electricity market and concerns about the effect of the Public Service Commission’s reset:

“The New York State Public Service Commission’s new rules on retail energy markets – despite declining complaint rates – threaten to limit the energy options available to residential and commercial customers.

“In February, new requirements took effect on third-party service providers selling electricity and gas to residential customers, requiring them to guarantee their prices will remain lower than the incumbent utility.

“The commission deserves credit for putting consumers first. Unfortunately, instead of protecting customers from deceptive marketing, the price guarantee threatens to undercut the benefits of the competitive market by making it harder for smaller providers to participate.

“Independent service providers have been crucial to advancing New York’s transition to lower-carbon power, encouraging customers to improve their energy savings and bringing more renewable energy to the market.”

Read the full op-ed at BuffaloNews.com.

Meet nine state regulators who are 'shaking things up'

“Significant players behind the flurry of state regulatory activity are customers — ranging from large old-line industrial and manufacturing concerns to retailers such as Walmart, technology companies like Google and Apple, governmental units, and homeowners.

Those customers want to save money where they can on electric power and are demanding new technology offerings, but they're also motivated by concerns about their carbon footprints and in the case of corporations that is driven in large part by Wall Street investors.”

Read full story at E&E News.

Cleveland.com: Is Ohio’s HB 6 bailing out nuclear and coal plants a tax - or a win for FirstEnergy Solution bondholders?

A political group opposing the repeal of House Bill 6 is running ads claiming the referendum would cede control over Ohio’s energy sector to China.

A political group opposing the repeal of House Bill 6 is running ads claiming the referendum would cede control over Ohio’s energy sector to China.

Voters may be surprised to know that Ohio’s anti-tax, Republican-run legislature imposed a new tax on Ohio’s electricity customers in July – House Bill 6, the FirstEnergy Solutions bailout bill.

That’s what Akron-based FirstEnergy Solutions, HB 6’s chief beneficiary, claims in a lawsuit filed this week in the Ohio Supreme Court. And if the high court agrees with FirstEnergy Solutions, that would deny Ohio voters any chance to vote HB 6 up or down at the ballot box, because the state constitution forbids a statewide referendum on tax legislation.

The Ohio House vote to approve the HB 6 bailout was 51-38 – just one more than the 50 required; the Senate vote was 19-12, two votes more than required. And the bill’s supporters denied that it was a tax measure – then. Instead, the bill’s backers said it will let two non-air-polluting nuclear power plants, Perry and Davis-Besse on Lake Erie, keep generating. Without subsidies, the plants’ comparatively costly electricity can’t compete with electricity generated by natural gas.

Read the full editorial at Cleveland.com.


Denver Post: Four Colorado utilities join forces to explore joining regional trading market

Four Colorado utilities, including Xcel Energy, the state’s largest provider of electricity, are exploring whether to join a regional trading market to acquire real-time power at the lowest possible cost.

Xcel Energy, Black Hills Energy, Colorado Springs Utilities and the Platte River Power Authority, an electric cooperative, have teamed up to hire an independent consultant, who will evaluate the benefits and costs of joining what’s called an energy imbalance market. The consultant will look at markets organized by the Southwest Power Pool and the California Independent System Operator.

The results of the study are expected by the end of September and a decision is expected by the end of the year.

Read more in the Denver Post.

South Carolina Post & Courier: New elections of SC utility regulators could shake up commission

State lawmakers are seeking candidates for the S.C. Public Service Commission, setting the stage for a possible sea change on the board that decides how much utilities can charge for water, gas and electricity. 

The state House and Senate will accept applications for four of the seven seats on the utility commission from Sept. 16 to Oct. 11.

They’re looking for candidates with a bachelor’s degree and a background in law, energy, economics, accounting, engineering, water systems or consumer advocacy. 

The search for the next class of utility regulators comes at a critical juncture for the Public Service Commission.

The utility board is set to determine new rules for the state’s growing solar industry. It is facing criticism from Duke Energy over its handling of a recent rate hike request.

And it is likely to be tasked next year with another proposal from Dominion Energy to raise power bills in order to pay for several years of storm damage, infrastructure improvements and other operating costs. 

Read the full story in the Post & Courier.