Electricity market reform in PJM and MISO territories, done in a way that reflects the new world of decentralized energy, could save consumers billions.
That’s the word from a new study funded by the Wind Solar Alliance and conducted by Grid Strategies that focuses on the two US grid operators. PJM coordinates the movement of wholesale electricity in all or parts of 13 states and the District of Columbia. MISO does the same for 15 US states and the Canadian province of Manitoba.
The report is a follow-up to an earlier study that identified needed electricity market reforms.
The latest study is designed to give more oomph to the importance of market reforms by laying out the potential savings: Electricity market reforms in the Midwest, Great Lakes, and Mid-Atlantic could save consumers over $6.9 billion every year, the report said.
The largest savings would come from reforms that make way for more flexibility, said Michael Goggin, vice president of Grid Strategies and co-author of the study.
Value of flexibility
“Those are savings that could be realized by consumers if more sources of electricity supply and demand are able to offer their flexibility to the power system and receive compensation for doing so,” he said. This would lead to more efficient power system operations, particularly at higher levels of renewable energy. The savings from those efficiencies would accrue to consumers, he explained.
The report cites a National Renewable Energy Laboratory (NREL) analysis that found increasing the flexibility of the conventional generation fleet at a 70% renewable penetration in the eastern US would produce $2 billion in savings across 3,300 TWh of demand, or $0.61/MWh. NREL’s Rocky Mountain analysis produced similar results, yielding savings of $0.54/MWh by increasing conventional generator flexibility with a 52% wind and solar penetration.
Other meaty savings figures in the report focus on the value to the power system of adding energy storage. How much depends on the amount of renewable energy on the system, said the report.
One analysis found that with wind and solar each providing 10% of energy and being fully dispatchable due to the addition of storage, the value to the system of the wind and solar would be boosted by about $1.50/MWh, or $0.30/MWh in savings when divided across all MWh of demand, said the report.
What’s more, a study for First Solar by the consulting firm E3 found that making solar fully dispatchable increased the value of solar generation on the Tampa Electric power system. “With solar generation meeting about 24.5% of demand on the Tampa system, the average value of solar generation increased by $7.40/MWh, which translates to total savings of $1.81 across all MWh of demand,” said the report.
Also examined in the report is the impact of reducing or eliminating the boundaries between markets. An NREL study looking at 70% renewables penetration in the eastern U.S. examined the effect of reducing these market boundaries so that the different markets exchanged energy.
Decentralized energy calls for new models
“That study found $2 billion in savings across 3,300 TWh of demand, or $0.61/MWh,” said the Wind Solar Alliance report.
Allowing renewables, storage, hybrid generators and other new resources to fully participate in markets is also an important goal, said the report.
Existing rules and regulations were designed for a centralized system. But now that the electricity system is moving toward more decentralized energy — renewables, storage and other distributed energy resources (DER) — new models make more sense, said the report.
While the report covers PJM and MISO, its message applies across the country, said Goggin.
“We focused on PJM and MISO because they’re the biggest RTOs (regional transmission operators). They’re the trend setters,” Goggin said.
The report recommends changing the market structures so market prices allow renewable energy and demand response to provide flexibility. Right now, in most RTOs, rules prevent renewables from supplying flexibility.
“We think it’s a no brainer to take a close look at those rules,” said Goggin.
Elements of electricity market reform
Microgrids could serve an important role in providing flexibility if the market provided that compensation is appropriate. They can provide demand response, storage and renewable energy to the grid.
One of the most needed changes is real-time retail rates that reflect the true cost of electricity. This would make electric demand more responsive to price. Existing retail prices — generally fixed prices per kWh — are a big source of inefficiency and missed opportunities, he said.
With real-time pricing and smart controls, smart appliances and smart electric vehicle charging, customers can use electricity when prices are low and use less when prices are high.
“It’s a question of getting price signals right. Companies will come in and aggregate resources and provide them to the grid,” said Goggin.
Such reforms could take place at the public utility commission level, at the state level and also at RTOs, said Kevin O’Rourke, interim executive director at Wind Solar Alliance. Stakeholders can get more involved at the RTO level, where there are often daily meetings to discuss rules and prices.
“In a sense RTOs are their own legislative body. They meet often out of the eye of the public, in committee structures. A lot of rules are made in closed-door meetings that only technical people pay attention to,” said O’Rourke.
Moving states into RTOs
In spite of some of the drawbacks of RTOs, it would be helpful to move the states now outside of RTOs into RTOs to bring more renewable energy online, said Goggin.
“If you don’t have a centralized market, one of the easiest ways to integrate renewables is to move into RTOs, and centralized planning and markets. This provides great efficiencies for customers.”
However, state regulators can require utilities to offer real-time pricing with or without RTOs, O’Rourke said.
The report’s sponsors and authors hope that providing numbers that showcase the dollar benefits of electricity reform will spur action.
“When you show cost savings, if you demonstrate them in a quantitative way, the reforms are more tangible and urgent,” said O’Rourke.
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