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FERC Ruling Can Help Regional Grids Experiment with Renewable Integration

With large-scale renewable energy expansion still in its early years, the Federal Energy Regulatory Commission (FERC) is allowing regional electric market operators to discover the policies best suited to their respective regions. In a constantly fluctuating industry, such flexibility is a virtue. 

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Integrating ever-larger amounts of renewable energy onto the grid will require experimentation and innovation at the policy level. Each region of the country faces unique political, geographic, and resource constraints, so allowing each region to test its own policies will help bring out the best solutions for the nation as a whole.

In that vein, FERC is allowing two of the country’s regional grid operators — NYISO, serving New York’s grid, and PJM, serving 13 mid-Atlantic states — to have different methods of valuing the firm and reliable, or “accredited” capacity of renewable resources. NYISO and PJM conduct large-scale planning to ensure adequate generation capacity exists to meet current and future needs. No power plant produces all of the power it is theoretically capable of producing, particularly weather-dependent wind and solar power. Capacity accreditation is a way of reflecting how much of that power counts as firm, dependable power for overall grid reliability. 

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How much capacity power plants are accredited influences which types of plants are built. For renewable energy in particular, a plant’s value increases the more capacity it is accredited. FERC is allowing PJM to value each renewable resource’s accredited capacity at the class average of that resource — e.g., all solar plants would have the same accredited capacity. In contrast, NYISO is valuing each plant’s accredited capacity based on the marginal contribution that specific plant makes to overall grid reliability. Experimenting with renewable integration policies will help grid operators find solutions that suit their own local needs and, if successful, provide a model for adoption by other grid operators.

Both approaches have their merits and will ultimately influence which power plants get built. For instance, PJM’s average capacity accreditation method is straightforward and consistent across power plant projects of the same resource type, giving investors and developers important long-term certainty, especially as it pertains to an energy transition. The fundamental economics of, say, solar power are fairly consistent within the same region, and developers should be confident in the value of bringing new plants online. 

By contrast, the more conservative marginal capacity accreditation method recognizes that the reliability of the power grid is of cardinal importance in long-term planning, and one solar plant may contribute more to that reliability than another. If the market is already saturated with a resource such that the next megawatt barely contributes to reliability, the market ought to provide a signal to switch investment to another resource. 

As FERC has recognized, there isn’t a single correct approach. In an industry with constant innovation, this flexibility provides a good baseline. New technological development, from more efficient solar panels to more widely available energy storage capabilities, will undoubtedly change market dynamics. Grid operators should let these resources compete to contribute to energy markets in the way that best suits producing reliable and affordable electricity. 

Different regions experiment with other aspects of the energy market as well. For instance, many northeastern grid operators use demand response programs, which lower energy usage at key times and cut the cost of meeting peak demand, more effectively than midwestern grid operators, because northeastern states’ competitive electricity markets facilitate demand response better than the midwest’s monopolized markets. 

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As another example, California’s grid operators have been ahead of the curve in developing rules for integrating battery storage, resulting in California having around half of all installed battery storage capacity in the country. Looking forward, a potential regional market for western states would have its own challenges — greater solar power potential, hydropower risk from drought, and distance between population centers — that should be reflected in its market design. 

In a country with many diverse regions, energy policies pertaining to emerging technologies should not be a one-size-fits-all. What works for one region may not be right for another, as differing geographic, economic, and political conditions can influence how those markets operate. Keeping a flexible operating environment will allow the best solutions for integrating renewable energy to emerge naturally. 

Jakob Puckett is an energy analyst and a Young Voice Contributor. Follow him on Twitter at @jakobrpuckett. 

The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.

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