Electricity market rules need an overhaul to spur further penetration of renewables and lower power prices, according to a report released Monday by the Wind Solar Alliance and Grid Strategies.
The authors argue that renewables can provide the same — if not better — grid reliability services as traditional thermal resources, but that outdated rules don’t allow wind and solar to compete on equal ground.
The report suggests a fuel-neutral and technology-agnostic market redesign that prefers flexible capacity. Among their roster of recommendations, Wind Solar Alliance and Grid Strategies said the market should price the inflexibility costs of conventional generators and allow renewables to provide and set the price for reliability services.
Concerns about the current state of power markets echoed points made last week at Wood Mackenzie’s Power & Renewables summit, where WoodMac's head of global strategy Prajit Ghosh acknowledged that “the way this market is designed is not made for renewables.”
Sean Gallagher, vice president of state affairs at the Solar Energy Industries Association, said it’s time for regional transmission operators (RTOs) to get in line with a transition that is already well underway.
“RTOs are going to have to recognize the inevitability that wind and solar are going to continue to grow on their grids,” said Gallagher. “We know that these resources are coming, we know what kinds of characteristics and capabilities they have now, and there’s some data to prove it. Now we have to work with RTOs to modernize their markets…so we can fully take advantage of the capabilities of inverter-based resources.”
Market rules were mostly created in the 1990s and early 2000s, according to the report, well before clean energy technologies became legitimate players on the grid. In the last decade, though, installed wind capacity tripled while solar capacity has grown sixfold.
Some states and RTOs, plus the Federal Energy Regulatory Commission, have made piecemeal efforts to offer renewables a better footing in power markets. But the authors said the high percentage of renewables that some states have planned are only possible with a more thorough remake of markets.
What’s more, advocates say revamping rules will give the grid more flexibility and drive down electricity costs because of the unique grid services that renewables provide.
“It really comes down to that control,” said Michael Goggin, Grid Strategies vice president. “That’s because [renewables are] digitally controlled, as opposed to traditional generators, where you have a lot of mechanical inertia. That takes time to kick in. […] With inverter-based wind, solar and storage, it’s all electronic, and in fractions of a second you can [go from] zero to full output.”
The report specifically picked out changes that PJM and MISO can make. Both RTOs are currently considering changes to market rules and expect to see a steady increase in renewables. According to Grid Strategies founder and President Rob Gramlich, the current structures of both RTOs provide a good base for changes.
“There is a very good platform to work with in much of the U.S.,” said Gramlich. “The standard American market design, which has the bid-based economic dispatch with locational prices, that is a very flexible market.”
But Gramlich also said “the details matter a lot” as MISO and PJM address potential redesigns. The report suggests the RTOs rely less on self-scheduled resources and instead focus on multi-day unit forecasts to reduce over-commitment of resources, often from fossil fuel generators. It also recommends that PJM modify bid parameters — a move MISO is already considering — to more accurately reflect flexibility contributions.
Aside from its own effort to reconsider market rules, PJM has also been pulled into the national controversy over the Trump administration’s plan to support coal and nuclear plants.
A recently released fuel report from the grid operator, part of a wider study, found coal and nuclear retirements won’t impact reliability. The findings have added further skepticism to the administration’s efforts.
The authors of the Wind Solar Alliance report acknowledged that policy — including the RTO stakeholder process, as well as federal decisions — will play a key role in deciding how renewables integration moves forward. But they also shied away from weighing in on those debates and said they wanted to keep the report “engineering-focused.”
The report indirectly challenges the administration’s arguments but does not mention Trump.
The authors argue that markets should focus on the services that certain technologies provide and not on characteristics of the technologies themselves. That should help steer potential market redesign away from politics toward a more fuel-neutral approach.
“This report doesn’t ask for anything that’s preferential for wind and solar,” said Gramlich. “We’re really advocating for what would be a more reliable and efficient market design overall.”