Let’s Re-Design Wholesale Market Rules To Reap The Benefits of Solar and Wind: Report

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Making wholesale power market rules friendlier to solar and wind energy could bring numerous cost and flexibility benefits, said a new report from a non-profit dedicated to strengthening the U.S. economy with renewable energy.

Aerial photos of the National Wind Technology Center. Photo by Dennis Schroeder/NREL

Even though the prices of solar and wind energy are lower in many areas than conventional options, grid operators are undermining their potential, said  “Customer-Focused and Clean: Power Markets for the Future,” produced by the consulting firm Grid Strategies for the non-profit Wind Solar Alliance.

A key finding of the report — which focuses mainly on grid operators PJM and MISO — was that wholesale power market rules should ensure solar and wind resources provide reliability services, said Rob Gramlich, founder and president of Grid Strategies, which helps clients integrate clean energy into the electric grid.

“New wind and solar plants as well as new storage plants have a lot of fast response capabilities that are good at providing some of the reliability services, Demand response, frequency response and operating reserves are all reliability services the regional transmission organizations procure,” he said.

To bring wholesale power market rules into the new world of renewable energy — and reap its cost and reliability and environmental benefit — the authors made a number of suggestions, including accurately compensating resource flexibility. The report calls for rules that are “flexible, fair, far and free.”

Implementing the report’s suggestion requires working within MISO and PJM’s stakeholder processes, and eventually gaining approval from the Federal Energy Regulatory Commission (FERC), said Gramlich.

Microgrids, solar and wind

Growth in renewables and microgrids are closely intertwined. Microgrids are increasingly used as a way to mitigate the variability of solar and wind on the grid. In addition, green microgrids often incorporate renewable energy as an on-site energy source.

Wholesale power market rules and operating protocols were designed based on the characteristics of conventional energy sources, so they are biased toward those resources, Gramlich said.

Nearly two-thirds of the electricity in the US goes through centralized wholesale power markets, affecting the nation’s economy and population, said the report.

Learn more about microgrids, renewables and power markets. Join us at Microgrid 2019: Reshaping the Electric Grid, May 14-16 in San Diego

“Market rules can make or break the economics of an individual supply or demand resource, and the reliability and affordability of electricity,” said the report.

“We are pointing out all the subtle ways there are advantages to renewable resources and better ways to take advantage of these new technologies,” Gramlich said.

Areas of the country that do not have organized markets — regional transmission organizations (RTOs)  — would benefit from regionalizing to help integrate variable solar and wind resources, he said. “We do advocate for broad regional operation, which includes expanding RTOs across the West or Southeast or any area that doesn’t have them.”

One key issue that should be addressed is self-scheduling, Gramlich said. Current market rules favor conventional resources.

“They are allowed to dispatch themselves even if they’re not economic,” he said. “That, of course, tilts the balance and takes market shares away from new resources.” If resources were dispatched based on their economic merit, renewable energy sources would fare better because they are less expensive to dispatch. That’s because the marginal cost is zero, so there are no operating costs, he noted.

In MISO territory, consumers pay $500 million a year for inefficient self-scheduling, Gramlich said. In PJM territory, the cost is $120 million a year.

Another important issue is an ongoing debate in PJM, where capacity reform is underway, he said. Right now, PJM “mitigates” the effects of state policies, including renewable portfolio standards (RPS), by imposing a “minimum offer price” rule on resources that receive state incentives. That effectively hikes up the bids on renewables and makes them less viable in the market, Gramlich said.

“If you sell a renewable energy certificate to someone to comply with an RPS, they say you are getting a subsidy,” he added.  “We don’t see a basis for this and are challenging that notion before FERC.”

Flexible, fair, far and free

According to the report — which calls for a “fair, far and flexible” power system — a “fair” market would treat all customers and resources equally and allow them to succeed. “Such a market will be designed around service requirements and performance capabilities and be fuel-neutral and technology agnostic, without inappropriately advantaging or penalizing particular customers or resources,” said the report.

The market should provide compensation based on “objectively metered services delivered, rather than subjectively determined resource capabilities or attributes,” the report said.

A “far” market would have a broad geographic area, and this would maximize the efficiency benefits of diverse supply and demand resources.

A “flexible” system would adapt to changes in uncontrollable or non-dispatchable factors such as load, wind speed, solar production, generator output deviations, outages and transmission disruptions.

And a “free” market should facilitate customer choice, without creating barriers to market entry and exit. “It should also support customers’, states’, and local authorities’ ability to act on choices about how to balance between goals such as least cost, distributed versus centralized, environmental impact, local and in-state development, and other priorities,” said the report.

Overall, the report is all about allowing wind and solar to work their magic and provide economic, flexibility and environmental benefits.

“We’re simply asking that renewables be able to fairly compete,” said Gramlich.

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