Stephen Lacey: This is The Interchange weekly conversations on the global energy transformation. This week, we've got a wide-ranging interview with Travis Fisher, a senior advisor at the Department of Energy, and the lead on that widely anticipated grid study. Both Travis and his report have been under the microscope for months now. In the 11 years that I've been covering energy, I have never seen a report get this much critical attention before it was released. It's a good report, but it didn't live up to its hype as a political document that critics expected.
With that said, this is a very meaty report. There's a lot of good stuff in there. There's a lot of stuff that people are critical of, a lot of stuff that people agree with. You're going to see what you want to see in this report. It is still incredibly important, because in theory, it sets the tone for Secretary Rick Perry's energy department priorities.
Let's remind people why we've been talking about this since April.
Shayle Kann: Yeah. This was the first big public thing really that Secretary Perry did in his tenure in charge of the DOE. He had come in and been pretty quiet and generally had been tweeting things out in support of various DOE programs, hadn't gotten super political. Then, sort of out of nowhere on April 14th, he issues this memo that is requesting a study to get done, and a lot of people read the memo as being a dog whistle for some of the administration's priorities particularly surrounding saving coal, which the president has stated a desire to do a lot of times.
The memo sparks this really heated exchange. As we've said before in some ways I think the memo resulted in a lot of really good research being released on the grid and its state, not just the study itself, but what was happening in the interim. But it was viewed, I think, as kind of a landmark, as you said, of what Secretary Perry's tenure is going to look like and the types of things that he's going to push for. There's just a ton of scrutiny on it.
Stephen Lacey: This was a really important interview for us because Travis has been laying low since he got to DOE has kept his head down when this report finally got assigned to him. He's just not been talking to the press. He has been under some personal attacks. A lot of his previous work has been dredged up. Many people speculated about the types of political agenda that he would in theory bring to this process. In this interview, he unpacks the process. I think we do get a pretty good take on what he was thinking as this report got assigned to him, and as he started working with other teams at DOE, we unpack some of his philosophy about free markets, and where he's coming from ideologically. That's quite interesting as well.
Then, we work our way through the report and try to get as detailed as possible about some of the agendas that his team and he are setting in this report, some of which have gotten roundly criticized, and some of which have gotten praised by the distributed energy, renewable energy industry. So there is a lot to work through in this.
Shayle Kann: Yeah. Totally. It's 187-page study. It's dense. There's a lot in it. Even lots of bits of it refer to other studies that have been done by the ISOs and by NERC, and all these others. Even the findings themselves and the recommendations are a little bit wonky. It's deep down in the weeds, which I think in some ways is not what was expected when Secretary Perry issued the memo. But as a result, there is a lot to talk about in there, questions about the state, the evolving mix on the grid, and what we need to do to ensure that we retain affordability, reliability, resiliency and arguably decarbonization, so we got to all of that with him.
Stephen Lacey: Without further ado, let's get into our conversation with Travis Fisher, a senior advisor at the Department of Energy. We started off at the very beginning, how Travis became a free market economist.
I read in an interview at one point that you were once a left-leaning moderate, I think confused was the word you used, until your junior year as an undergraduate when you started reading classic works on free markets. Then, you became devoted to the field of economics. What catalyzed that shift for you early in your career in school?
Travis Fisher: I would say instead of confused, I would say inconsistent, because I think from the free market point of view, there are a lot of crossovers between sort of the free market view and sort of the left end of the spectrum. I think the thing that stood out to me was, coming from that point of view, from sort of the general left half of the spectrum, I think what appealed to me about free markets was the harmony that can come from this is a system that can take inherent human selfishness and turn it into a good thing.
Stephen Lacey: So you went into the belly of the beast, and went into the most highly regulated industry that I can think of, energy. What catalyzed the shift into energy specifically and energy economics?
Travis Fisher: Well, I've heard people say the fireman goes to the fire, right? I'm not going to be sort of a free market advocate, and then stand back and say, "Well, somebody else take on the hard issues." It was instead, I decided to go straight to this industry precisely because it's one of the most bogged down by regs and subsidies and interventions across the board, I would say.
Stephen Lacey: You spent seven years at the Federal Energy Regulatory Commission as an economist. You were not a fan of some of the rules put in place there, such as Order 745 on demand response, which you thought was representative of this overstepping of federal authority. Can you give us some examples of things that you worked on or maybe some examples of areas where you thought FERC was overstepping its bounds?
Travis Fisher: Sure. And I was able to write about topics like Order 745, because I didn't work on 745, but I followed the issues very closely. I guess the interesting thing for me on that was watching it go through each stage. You have the ... this is an administrative law nerd type thing, and I don't have a law background, but it was fun for me to watch. I ultimately think it turned out the wrong way, but it was interesting to watch it go from the staff level where you very clearly had a chairman in Jon Wellinghoff who was very interested in driving an agenda. The way it manifested itself was in the full LMP, full wholesale price for demand response, and at the same time, you had not just some infighting within the commission itself, but also sort of the amicus brief by economists.
My joke was that at anytime you get that many economists agreeing on something, there's something there. The fact that all the economists were going against what FERC decided, and then it went through the courts ... It was interesting to watch how FERC held up in that fight. Actually, this gets into the appropriate amount of court review of things like FERC rules. I thought FERC got away with one there, because they were ultimately upheld by the Supreme Court. I don't agree with that.
Shayle Kann: Then, you come into DOE under the new administration. On April 14th of this year, Secretary Perry issues this memo requesting that a study get done on grid reliability, and basal resources, and the like. How did you end up being the one who got tasked with it? And I guess more broadly, what was your role in this study in relation to everybody else who worked on it?
Travis Fisher: Well, as soon as the April 14th memo came to our chief of staff, it became clear that we needed somebody to own it. We looked initially, Brian looked at initially ... I'm talking about Brian McCormack, who's Chief of Staff, looked initially at the Office of Electricity. Full name would be Office of Electricity Delivery and Energy Reliability, headed up by Pat Hoffman, who is amazing, by the way.
Brian looked at Office of Electricity as sort of the point office for it. At the time, I was the only appointee in the Office of Electricity. I don't want to say I was thrown under the bus, but it made sense that if we're going to have an appointee lead the process, given that it was a secretarial memo that started it off, that I would be the coordinator for the study along with Pat Hoffman.
Shayle Kann: You get tasked with this study. Pretty much immediately after the memo gets released, the political uproar within the energy community begins very quickly. I think a lot of people, especially progressives, saw the memo as a dog whistle for some of the administration's priorities on especially on saving coal. So, they started digging into your historical track record and things that you'd said before you were at DOE. Did you anticipate the ... like how politicized this would be from the start? Did you know it was going to get the attention that it got? Because most DOE studies obviously don't get this level of scrutiny.
Travis Fisher: I did not anticipate it. Looking back on it, I can understand how the terminology, the freezing of the April 14th memo would cause some ... as you said, it was a bit of a dog whistle, so it caused some reaction from folks who, for example, don't even like using the term base load. But the extent to which it got political, and even personal, I did not see that coming.
Personally, I would prefer to stay out of the news, but my involvement leaked fairly early on. The whole process has been sort of a history of leaks of personnel and drafts and things like that. I didn't expect the personal attacks.
Stephen Lacey: That brings us to a couple points in the process. I do want to get to the leak itself, but I'm actually just really curious what you thought when this report was handed over to you and in theory, you had 60 days to complete it.
Travis Fisher: Well, again in hindsight, 60 days was on not just ambitious, but I would say impossible, just because the amount of input that we needed to receive from the different elements of the department and the feedback and ... As you receive a new round of edits, I thought of it as you're at some points, you're putting the draft into a blender. Then, you sort of have to reconstitute it after the fact. It wasn't just putting the same draft through a few different iterations. It was essentially rewriting the draft several times based on staff input. That in itself ... if we started with a complete first draft on April 14th, that would be the only way that we would have it done in 60 days. It ended up taking 120, but I think it was worth the extra time and the extra thought just to make sure that it was a well researched and well-founded product.
Shayle Kann: You were leading up the effort, but presumably were not the only one involved? Apart from even beyond the folks who were giving feedback, I presume there were some others who were intimately involved in the writing of it. There are other people at the Office of Electricity, but it a read to me like there were pieces there that came out of studies that were done or work that gets done at the national labs. Can you speak a little bit at least in generic terms to who else was involved?
Travis Fisher: Sure. Early on, our process was to ... within the Office of Electricity was to involve key point people from other offices that had the right expertise. Each office has folks who are experts in such a wide variety of things, that you kind of know offhand who's going to be sort of the power grid expert within a given office. A great example is we started going through which offices have equities, have sort of a stake in this kind of study. Off the bat, we ... obviously all the fueled centered offices, so you have the renewables office, you have nuclear energy, fossil energy. We knew that we would have to rely quite a bit on EIA and their data, and we wanted to make that a back and forth because we don't want to use their data in a way that they're not comfortable with.
We ended up assigning point people from that point of view. Just on the staff level, we engaged a lot of folks. Now, on the lab level, we went through the GMLC, the Grid Modernization Lab Consortium, and used a point person through there who coordinated the lab effort. We had a May 4th event where we had a bunch of lab folks in the same room, had people present their best work, their most applicable work, and there was a lot of good stuff. I would say standing out would be the Berkeley lab work. That ended up being a focus for us was it, on the one hand, it gave us really good information. On the other hand, it indicated who were the key personnel that we would need subsequent rounds of review. We wanted to make sure that those folks were involved throughout the whole process.
Stephen Lacey: At some point, someone stops this blender ... You described the process as putting all these teams and sources of information into a blender. At some point, someone stops that blender, pulls it out, and leaks a draft to the press. How did that feel when that happened? Did that have an impact on the release date, the process, conclusions, et cetera?
Travis Fisher: This feels like a Barbara Walters question. You're trying to get me emotional. My feelings on the matter were, on some level, it was a sense of betrayal, because we had been very open and inclusive throughout the whole process. We had already set in motion a very inclusive and wide-ranging and information gathering process before all of that. It made me feel like it backfired to be inclusive.
On the other hand, I mean I'm trying to think of the ways ... I've put it in terms of we have processes in place that establish a certain amount of transparency. We have the Freedom of Information Act, which is a separate thing, but it does ... it gets at the same issue of ... In your previous podcast, you mentioned that as a taxpayer, you want some reassurance that the apparatus is working, and you want some transparency into how we're doing these studies. I understand that completely. I think that's what the FOIA process is for.
On the other hand, there are checks against complete transparency. The foyer process recognizes the law. It's part of the foyer process that you actually have a protection against staff debates, that there's a chilling effect when it's 100 percent transparent. If you can imagine, if we take that to the extreme, in our closed-door meetings, imagine if we invite Stephen Lacey, and it's all on the record, and we say, "Look, all of our debates, all of our opinions, every single thing that we say here is on the record." That would be a much different process than one that says, "Look, we're allowed to have closed-door meetings. We're allowed to propose really stupid ideas, because we know that they're not going to be published immediately."
Instead, what we had was ... we're halfway through the process, and the thing gets published. It's interesting. I know there has to be a balance between transparency, accountability, and all that, but also I think you get a stronger product in the end if you allow some elements of internal debate.
Shayle Kann: I agree with you generally on this. I said it on the other podcast I was uncomfortable with the-
Stephen Lacey: Can I stop you there, Shayle real quick. Just for listeners who don't know, this is a podcast ... If you're coming to this interview and this podcast for the first time, this is an episode we recorded a few weeks ago when the report actually leaked and Shayle and I were sort of speculating and ruminating on the consequences. I just want to mention that that's what Travis was referring to.
Shayle Kann: Right. I feel for you, and said this on that other episode as well where if somebody were leaking a partially complete draft of a report that my team was writing, I would be uncomfortable with that as well. I mean, I'm not in the public sector, but nonetheless, point taken. I do wonder, my presumption is that whoever did leak the draft did so out of fear that the ultimate report would be politicized in a way that that draft was not, or that the findings would be changed. I mean, you said you were running a pretty open, transparent process internally. Do think that there was any founding for that fear, or was somebody just totally worried for no reason?
Travis Fisher: My hunch is that whoever leaked it was not involved in the front end of the process, and was stunned by the clarity of the draft at the time. I'm sure they thought that it wasn't going to see daylight, that sort of what they've said there on the record and in certain other articles.
I personally don't think there's any founding to that at all. In fact, since the final has been published, some people have credited the leaker with somehow changing the outcome and saying, "Oh well, they painted the DOE into a corner and made this result be what it is." The only thing the leak changed was we had to tighten the process a bit to make sure that it wasn't going to go back to whoever leaked it. Really, all it did was pull us in, and we had to keep tighter control of the document. But in terms of the politics of it, the findings, the scope of the research, none of that changed. So I don't think it's founded at all that the reason behind the leak or the idea that the leak had any effect on the findings, there's just no founding to it.
Stephen Lacey: Well, I think this is a good time to talk about the findings and the recommendations. Shayle, do you want to summarize some of the findings and walk through some of the ones that are interesting to you?
Shayle Kann: Yeah. I liked the way that the second chapter of the study lays out the key findings in three different categories. I think we could talk about those one by one. To me, the kind of overarching finding of the study, which I'm interested to get your take, Travis, on whether you think this is accurate or not. But to me, the overarching finding was that largely speaking today, electricity markets are functioning as designed. We have totally sufficient reliability, and reserve margins. We haven't actually experienced any massive blackouts in quite a while. We have a changing resource mix, but thus far, markets are able to adapt to that as a stand today, and yet you foresee, or the study foresees, some challenges around the corner that you think need to be elevated, and for which there should be more urgency to address. Is that an accurate description?
Travis Fisher: I think that's accurate. We're not the only one saying this. That's one of the critiques that we've gotten so far is that we don't say anything new. I would push back on that to the extent that we do probably the best postmortem on power plant retirements that I've seen. And over the past 15 years, there's certainly things worth examining. I think in terms of the way we boiled it down into a single paper, that's the value added here.
But as far as the focus on electricity markets goes, yeah, I think as they were designed, they are doing incredibly well. I think the significant amount of out of market action from states that we're seeing is evidence that there are reasons to move outside of the design parameters.
Shayle Kann: That sort of speaks to the first area of findings in the study, which is ... the question that was asked in the memo was whether the changing nature of the electricity fuel mix is challenging the original policy assumption that shaped the creation of electricity markets, which is a little bit wonky, but the result that is suggested in this study is ... says that, quote unquote ... or sorry, says that quote, "Changing circumstances of challenge, both centrally organized and to lesser extent, vertically integrated markets." Can you just go into a little bit more detail on the way in which you see changing circumstances today as posing a threat in the future to how the markets are designed?
Travis Fisher: Sure. I think probably the biggest thing is the ... This gets very wonky very quickly, but when you talk about the missing money problem, which some folks, we were encouraged to use that term with caution, because it means a lot of different things to a lot of different people. But as I understand it, and as we talked about it in the context of the report, it really is. I mean, there is a revenue problem in wholesale electricity right now. There's a significant fall just in terms of the ... if you look at the shape of the supply curve overall with very low natural gas prices, you already see that the prospects of price spikes in general day-to-day activity are just not there in the way that they used to be.
There's a combined effect of a lot of different things. It's gas prices, flattening that supply curve. It's lower demand than expected, putting you on different parts of that supply curve. In both cases, you're going to get less price spikes. Then, you have somewhat of a shifting out based on very low marginal cost units. We're talking about new wind and new solar. On top of all that, you have ... for the units that are affected by environmental regs, that's a new cost for them too, so especially from the point of view of the historical base load units. Those are under particular stress, because of all those four other things combined.
Shayle Kann: Right. I think that most folks, on whatever side of this conversation they sit on, would agree with you. There's clearly ... we're seeing an increasing volume of retirements of these base load plants, particularly coal and nuclear. I think that most people generally also agreed about your diagnosis of the causes. The study itself identifies low natural gas prices as the primary cause, which I think is generally agreed upon, and then identify as those other three, flattening demand, increasing volume of zero marginal cost or low marginal cost, wind and solar and environmental regs. I think there'd probably be some debate about the magnitude of those other impacts today and so on, but broadly speaking I think we could find agreement there.
Now, the next question where I think it gets a little bit more controversial, or at least where there's some reasonable debate, is whether that matters, whether the missing money for base load plants, for inflexible resources, is actually a problem. The way that the study sort of addresses this is by diverting to a conversation about reliability and resiliency. Is that why the missing money problem is ... should even be addressed?
Travis Fisher: Well, I think it's worth addressing on its own. It was already being talked about quite a bit on its own. I think that conversation is only speeding up. Now I think there are certain policy implications that make it even more important. I would point in that case to you have subsidies that impact the market directly in the form of the PTC, and RECs and things like that. I think probably the more important thing is obviously the long-term effects of if we allow things to go as they've been going for the past few years, what we're seeing is just an incredible amount of natural gas and VRE, very renewable energy. In the study, we just used VRE instead of talking about wind and solar.
In this world where we're seeing a lot of new gas and a lot of new VRE, that raises a lot of interesting questions that we never really had to talk about before, sort of the ... Of course that pushes you into a resilience conversation because those resources have very different resilience characteristics that we haven't seen from, for example coal and nukes. It is sort of the window into the conversation. The market dynamics can't be separated from the resilience question, because the one is causing the other.
Stephen Lacey: Right. I went to take another moment to reflect on this a little bit deeper. Obviously, a lot of outlets have really honed in on this, one of the findings, which is that natural gas and lower-than-expected demand are a couple primary drivers for speeding up base load power plant retirements. It does appear to contradict a statement you made in a 2015 report at the Institute for Energy Research, which was that the single greatest threat to reliable electricity in the US doesn't come from natural disturbances or human attacks, rather the host of bad policies now coming from the federal government. How do you square the conclusions from the current DOE report with that past conclusion? Has your thinking evolved in any way since that 2015 study on policy threats to the US power grid?
Travis Fisher: Well, I'd like to point out a couple things. First, I wasn't the author of the DOE report. I was the coordinator of the effort. At the end of the day, I tallied up multiple dozens of people who added to the effort. And more than two thirds of which were career feds, some of which were contractors, some of which were appointees. Of course, I'm an appointee, so the fact that I was identified as the lead author of the study early on, on the one hand, that's not even perfectly accurate but-
Stephen Lacey: Great. This is like shorthand in the press.
Travis Fisher: To compare the DOE report to my previous work is already you're comparing the work of one person in 2015 to three or four dozen people in 2017. Even with that, point taken. Of course my thinking has evolved quite a bit. I would argue that the policy environment has evolved quite a bit.
For example, in 2015, we were looking at the PTC forever. That has changed. It's on a phaseout schedule now. In 2015, we were looking at the clean power plant. That has changed quite a bit. Just in an apples, apples way, we're not comparing the same policy environment. Of course, the policy threats have changed quite a bit. That's one element. On the other hand, I mean they're actually ... I would say the threats that we were seeing at the time, they were on the order of a small operation trying to shoot up transformers at the Metcalf station in California, that ended up not causing any catastrophic blackouts.
That was sort of the context at the time. Since then, of course, we've seen a lot of different cyber attacks. There's what we saw in Ukraine. We're seeing more and more of that even now in the US. That is a growing threat, certainly on the cyber front, is a growing threat. The policy threats I was saying in 2015 have all basically gone away. Yes, things have changed. I would still agree from the point of view of 2015 with what I wrote at the time, but now things have changed quite a bit.
Shayle Kann: I want to get back to the question of the missing money problem and sort of how it relates to reliability, because I think this is a bit of where the crux of the debate around the study's results lies, which is the current presidential administration seems to believe a priori that we need to save coal. It's on the decline, but coal is sort of an inherent good, not ... and isn't really making that argument from a grid reliability perspective. This study doesn't exactly call out coal, or even base load, but sort of raises the question, which is kind of what you were doing in your answer a minute ago of just saying, "Well, we have this changing fuel mix. We have a bunch of new variable renewable energy resources. That raises a bunch of new kinds of questions that we need to answer around reliability."
To me in some ways, it seems like you're sort of shying away ... not you specifically, but the study's sort of shying away from what it seemed like was the desired outcome, which was to say, "We have a reliability crisis on our hands if we retire all this coal and nuclear. This is going to be a problem." But instead, the study's kind of stopped short and says, "We should accelerate our efforts to study this. We should work with FERC and NERC and the ISOs and so on to do that." Does that feel like, it's to you because we're not yet at the point where we can answer this question, where we really do just need to do more study to figure out what's required for reliability, or is there some other reason?
Travis Fisher: Well, I think this actually gets at the difference between reliability and resilience. I think one key difference there is of course we have a reliable grid, and probably some of the best work right now is being done by PJM and other RTOs are doing very similar work, which is of the reliable grids that we have to analyze, how do we guarantee resilience among those? Even if we can take a step back and say that there is a ... there's two different ways to see even reliability on its own, which is sort of the operational second by second version, and then there's the resource adequacy point of view, which is years out, and saying we need enough generation capacity available to meet demand at any moment.
I think both of those require studying. I think the thing there is we... I'm not saying we have it all figured out, but that is a much more comfortable point of view to say, "Look, wait. I think we're doing well on that front." I think where we're doing less well is the resilience point of view, which is of the different portfolios that you can test against an event like a hurricane or a polar vortex, how many of those mixes are also ... are not just reliable, but also resilient. When PJM did that and they ... I believe this came out in March ... Of the 90 something portfolios that were considered desirable from a reliability point of view, only a third of those were also resilient. So there is a huge difference there between saying that we have a good handle on reliability and saying we know exactly what it takes to create a resilient grid.
Shayle Kann: The thing about resiliency, right, is ... again, where there's I think some debate or whether ultimately be some debate I think everybody agrees we want both a reliable and a resilient grid. The question is what resources are going to provide that given all the other considerations in the market, the need to maintain low costs, and we can talk about the need to mitigate climate change in a bit. Even setting that aside, some people make the argument, "Okay. The study says in a couple of different places that ..." and this is part of what that PJM study said as well, is sort of like if you get rid of all these base load resources, if you get rid of coal and nuclear, then you can run into an issue like we almost had during the polar vortex where there was a couple times where wind generation was down, natural gas was unavailable, and so PJM had to rely on some coal plants that would otherwise have retired or actually did retire since then to keep the power on.
But it also points out that coal can suffer from ... stockpiles can freeze. Many coal plants don't have stockpiles, so no resource is perfect when it comes to resiliency. It also doesn't, to me, really seem to take seriously ... the PJM study doesn't really take seriously the kind of new suite of solutions that potentially can supplement resiliency, things like micro grids, and energy storage more generally.
I think the question again here is like, is it that we are not taking resiliency seriously enough at this point, or is it that we are relying on a somewhat dated notion of what provides resiliency, what can provide resiliency in order to determine what's required from a market design perspective?
Travis Fisher: Well, I don't think it's dated. I think the polar vortex was only in 2014. I think we're still learning things about that, and we go through that in the report as sort of the relative performance of different types of power plants. As you know, coal's suffered setbacks, but not nearly as much as gas. As we looked at the data, the nuclear fleet did it especially well, which is exactly what we're seeing now with Hurricane Harvey and the nuclear plants in Texas. They're still operating 100 percent. You can't generalize based on a type of power plant, but I think it's important to keep things like that in mind.
These are the same plants. I don't know if we're going to get through the resilience homework in time to save some of these plants, but you're seeing very hard economic times fall on the most resilient plants, which would be the nuke fleet. That's why the market conversation and the resilience conversation, I think they both need to happen, but they also need to happen but in short order.
Stephen Lacey: I want to get into the recommendations, but this is probably a good time to bring up something that I've been thinking a lot about as I've read through this report. It's a great accounting of what's happening on the grid, but there's one big thing that's missing from this report, climate change, and by extension, public health impacts. If we factor decarbonization or, for that matter, local air pollution into this conversation, I do think it takes on a different context. It takes on a completely different context. If we strip those factors out, then this becomes a simple back and forth about the details of market rules. Certainly, a fun one, but not one with the same sense of urgency, I'd argue. As long as you make the grid more reliable or resilient, it doesn't matter what the grid mix looks like. If it's coal, so be it.
But climate change and local air pollution, they do matter. That has directly dictated a lot of the policy decisions that utilities and states and the federal government had made to promote renewables and efficiency. If we value an increasingly decarbonized grid, we can still have this conversation, but it does necessarily change the context of the conversation about the resource mix we want and what resiliency looks like. Do you think that greenhouse gas emissions should be factored into this kind of analysis?
Travis Fisher: Well, I think that's a question for the secretary. As far as the staff report is concerned, we were answering the questions as best we could. He ought to be asking those questions. That's more of a conversation for him, but I can say just based on my conversations with him not necessarily relating to the study, he is very concerned with CO2. His take on it is, "Look, if you want to get serious about CO2, why are so many people against the existing nuclear power plants that we have?" I think that's a fair question to start with because the policies that we're seeing especially in California, they're very clearly anti-nuke. At the same time, if you focus on the Diablo Canyon Plant, that's 2.3 gigawatts of CO2 and other air pollutant emissions free electricity.
If your policy plan is to shut down 2.3 gigawatts of CO2 free electricity, then I'm not sure that I can come to that conversation and say, "Look, we are both on the same page here, because we both care about CO2." That as a starting point is kind of off-putting for me.
Stephen Lacey: It's totally fair. The basis of a number of conversations we've had on this podcast recently, we have sort of tried to define and work out this concept of decarbonization. We've debated the idea of 100 percent renewable energy. We've looked at the role of CCS and nuclear in an 80 percent or 100 percent decarbonized electric grid. I completely agree with you with that framing. It's a very important question to be asking ourselves.
Let me ask the question this way. Let's assume that we do add in climate change, greenhouse gas emissions. You do still need to think about reliability, resiliency, but with this transition to a low carbon fuel mix. Do you think we have the sufficient tools, the technologies or market levers to support that while still living up to the standards that you outlined in this report of resiliency and reliability? Is that a conversation that we could be having? Do you believe that we have the market mechanisms and tools to basically implement what you're talking about in this report in that decarbonized framework?
Travis Fisher: If we're going to take on that framework, I don't think we have very good tools. Just from the pure engineering point of view of trying to balance supply and demand, there really isn't a whole lot of dispatchable CO2 free source of electricity that you can ramp up and down easily. I mean, we have a decent amount of hydroelectricity in places where that resource is available, but as far as VRE and storage, I don't see it coming along anywhere near fast enough to make a dent in the next few years.
Shayle Kann: I mean, this is a side conversation that could take us way down a rabbit hole, but I guess what I would say is that the study that you led itself identifies what I think a lot of people would see as the solutions to that challenge. It has a whole section on energy storage. It talks about expanded transmission and market integration. It even mentions things like demand response and load control some places as well. The folks who believe you can get to high penetrations of renewables without reliability or resiliency concerns believe in a future that has ... or have studied a future that has much higher proliferation of all those things as well as hydro, which you mentioned as well.
I appreciated that all those things were incorporated within the study. I thought that in the belly of the study, it mentions all the right things. It then sort of doesn't talk about those a whole lot either in the findings or in the recommendations, I found.
Stephen Lacey: But I do think that a lot of it has to do with market rules and regulations rather than technology constraints, because our reporters go and talk to utilities every day, tour pilot plants, tour commercialized plants, where they're not trying to necessarily figure out whether ... let's say solar plus storage, or behind the meter controls actually work for frequency regulation or for capacity services. They found that these can actually work, it's just a matter of getting the market mechanisms correct so that they can potentially play in the market.
I am not downplaying the integration challenges on a mass scale, but I do think that there are probably fewer technical constraints than there are market rule constraints at this point, to thinking about using distributed energy, new types of micro-grids, whatever you want to throw in this distributed energy landscape for these same kinds of services that we're talking about.
Travis Fisher: I certainly wouldn't disagree with that. I think from the economist point of view ... It's one thing to answer the engineering questions. It's yet another to say, "We can do all of these things and it won't have an impact on rates." I think from that point of view, a lot of the things that you're talking about are very expensive options. I mean the storage options available, the current class of battery storage, I mean, if you want to build a VRE plus storage grid, I certainly wouldn't argue against that from an engineering point of view. I would just say if we're going that route in terms of policy, if we decided to go down that route, we should do it with eyes open, with a very clear idea of the cost of doing so.
Shayle Kann: That actually leads me to a question I wanted to ask you anyway in the study, a couple of places within the study, and then I thought interestingly also in Secretary Perry's cover letter when the study was released, it talks a little bit about the potential trade-off between cost and reliability. Basically, it seems like it's trying to identify to somebody that you need to pay attention to the fact that, look, it might cost us more to have a reliable or a resilient grid. Why did you think it was important to make that point repeatedly?
Travis Fisher: Well, I think in general, the whole point behind the staff report is to inform policy. In our role as DOE staff, we were trying to inform the secretary in his choices that he has to make going forward. I think he saw a lot of the same things, which were basically, look, if we want to make this type of policy, if we want to ... as sort of a new policy shift to make the grid as resilient as possible, that certainly comes at a cost, which is the same policy trade-off as if you wanted to radically decarbonize the grid.
You can fill in the blank with the policy that you're choosing to go after, but each one of those choices comes with its own set of cost. I think that's just important as a general note to understand that the price tag of the thing you're going after.
Stephen Lacey: I'd like to transition now into the policy recommendations. There are seven here. Shayle and I were talking through the report before we started this interview. We kind of honed in on the first four. Shayle, do you want to unpack the ones you think are most important, and we can talk about those individually?
Shayle Kann: Sure. The first one I thought was interesting, because it's the first policy recommendation, but you can very quickly descend into deep electricity market wonkiness when trying to understand it, which is basically what I spent this weekend doing. The first one suggest that FERC should expedite its efforts to improve energy price formation in centralized wholesale electricity markets.
Stephen Lacey: The first thing I asked Travis when I got on the phone with him was like, "Can you please help me understand energy price formation?"
Shayle Kann: Right.
Stephen Lacey: Which is what you spent the weekend trying to figure out, too.
Shayle Kann: Yeah, exactly. I started frantically googling energy price formation. I read the PJM suggestion of what they should do to change their electricity markets from a couple months ago. I chatted with a few former FERC folks, so I'm like halfway there now. Travis, maybe you can help us? In the simplest terms that you can manage given the subject matter, can you explain what the price formation challenge is that you foresee now, and why we need to expedite efforts on it?
Travis Fisher: Well, as a first note, I should just say, when folks saw that policy reg, they said, "Well, we're already doing this." I mean, that is a point well taken. FERC is taking steps. I think the word expedite is key, though, because we could've made this policy reg two or three years ago, and it would've been the same. It's an open question as to why it's taking so long. I respect the stakeholder processes that have to go on at the RTOs and at FERC, but really it isn't anything new. It's what FERC has already been going after. Part of it is to allow inflexible units to set LMP. What that would do in practice is to put somewhat of a price floor on LMP in sort of off-peak hours.
Without going full wonk on you, it really ... If you're, for example, a very large nuke plant, and as demand falls to the point where you're not needed for only a few hours, you get this very strange, very aggressive fall in price. I think what that does in the off-peak hours for the inflexible units like a large nuke plant, that is a make or break kind of thing for them. It's in the context of the markets, it's a small tweak.
Shayle Kann: Okay. If I can attempt to reword this a little bit and put a little bit more meat on the bone. The situation as it stands today. So this is PJM as a proposal from June that we'll link to in the show notes here about price formation where they're recommending some changes based on pretty much exactly what you're describing. The situation as it stands today is if you're an inflexible generator, meaning if you're a base load plant, so probably you're a nuclear or you're coal, you have some minimum operate ... you have to continue operating. It's not economic, or in some cases technically possible, for you to basically just shut on and off all the time, but you have some minimum cost, that is your operating cost.
What can happen in the market sometimes at off-peak hours, as you mentioned, is that there will be low demand, or say there's high wind generation or something like that, prices will fall below your minimum operating cost, but it is economically you are required to continue operating, and so you're out of the money basically. The way that markets deal with this largely now is either there's some portion of you just kind of lose money, which is part of what's causing these plants to shut down, and sometimes there's what's called uplift, which is sort of an outside the market payment that will go to these generators to make up for whatever they lost in the market.
So, the proposal that the PJM was making was sort of twofold. They said, "Maybe we should change the rules so that these base load resources ... that these inflexible resources can, are eligible to set the LMP, the locational marginal price, when they are operating at minimum. So, that would have the effect of keeping them operational and keeping them in the green, but it would also increase the LMP for everybody else. I think inherently, and correct me if I'm wrong, this would increase wholesale prices, though arguably not a whole lot because this probably doesn't happen all the time.
Then, PJM's proposal was to do that, which would help the inflexible resources, but then separately to introduce a separate product in the market that is a load-following product, basically something that inherently rewards flexibility, which is something that California ISO is also introducing. That was sort of the trade-off introduced in PJM's notion, but the question, at least, that I have about it is like why do we need ... I guess it's back to the missing money question ... why do we need to ensure that these inflexible resources are made whole in the first place? Is that really the job of the market, especially to somebody who's sort of a free market supporter? Doesn't that strike you as putting our thumb on the scale a little bit?
Travis Fisher: No, I don't think so. The way that PJM has proposed to do it, I don't think that's the case. Really on sort of the most stripped down version of this is you're taking the uplift payments that you were talking about and putting them instead of out of market, they're in market. You're just internalizing an out of market payment...
Shayle Kann: It's a little different from that, right? That's true in the case of the specific generator that would've gotten the uplift payment, but because that generator is then allowed to set the LMP, all of the other plants also benefit from the higher LMP.
Travis Fisher: Right. That's true, but I think that that LMP is a more true and accurate picture of the system at the time. If prices are meant to convey information, I think you're getting better information in the PJM proposal than before.
Shayle Kann: What do you think about the other part of the PJM proposal, the introduction of a flexibility supporting product? I know that was mentioned a couple times in the study as well. I think it received a little less focus than reliability and resiliency, but it was also identified that one of the things that we need more of on the grid is flexibility as well.
Travis Fisher: Yeah, we absolutely need more flexibility. If we need new products to do that, that is completely consistent with the thrust of the report. I think some RTOs are going to approach it in different ways. Some people think on sort of a philosophical note that all you need is fast enough changes in energy price to incentivize that. Some say it has to be a separate product. All of that is obviously up to the RTOs to figure out exactly how to incentivize that load-following action. I think what we're seeing in California is probably ... on the front end of that it's saying, "How are they going to address that problem?"
Each RTO is going to have its own answer to that, but I think that in general is something that needs to be focused on and incentivized. I would expect RTOs to either come up with new products or to figure out how best to incentivize a fast ramp with pure energy prices to the extent that that's possible.
Shayle Kann: All right. In the interest of not going too far down this rabbit hole, like I said, we will link to the PJM proposal, and I think also at some point in the near future, try to have a separate episode of this podcast where we can actually just talk about price formation, because it is important, but it's also super complicated. We'll come back to that.
Let's move on to the second policy recommendation in the DOE study, which is valuation of essential reliability services. Can you just describe what ERS are?
Travis Fisher: If you ask a grid nerd, they'll get very excited about something called reactive power.
Stephen Lacey: Ask our grid team in the New York office about that.
Travis Fisher: Exactly. That can be its own show if you really wanted it to be, but it's enough, I think, to say that there's just a lot of things that aren't currently priced and not currently taken into account by standards and things like that that I think it's important to not just take things as a bundle as they historically were. Let's say you're operating a coal plant. In that plant, you have a decent amount of inertia to offer to the system. You have a governor, so you have some element of frequency response. All of these things were historically part of a bundled package deal.
Now instead, if you start to unbundle those things, if you have units that aren't necessarily responsive to a low frequency on the grid, then it gets more interesting. You sort of have to unbundle the pricing as you unbundle the services themselves.
Stephen Lacey: This is an interesting area. It's where you've seen some disagreement, but where I'd actually imagine you'd find when you dig into industry reactions, particularly the storage industry, you'd find a lot of agreement about this, because you talk about fuel neutral regulatory mechanisms for these essential reliability services. Essentially, what you're defining here is something that for example the FERC noticed of proposed rule-making it has set out to do for energy storage. It's told regional market operators, "Hey, create these rules to value energy storage for a variety of reasons."
What you're essentially saying is like we can set those, we can make them technology neutral and not just favor storage, and the storage industry could potentially benefit. Is that an appropriate way to define this?
Travis Fisher: Yeah. I think each industry, from its point of view, instead of trying to get rules that specifically favor it, I think the place where hopefully we could all agree is that, look, if there's a service on the grid that we need, let's define the service, and then let's compete on the service. I think that is a much more fundamental, long-term, lasting change that we can make as opposed to saying, "Well, there's this new technology that may need rule changes to accommodate this specific technology." Instead, it's a broader look at, "Look, we have a different type of service that we might need going forward. Let's define the service and compete based on that amount of service that we need. Let's not try to pick technologies."
Shayle Kann: Well, I want to just respond to like a couple things there. First of all, I don't totally agree with your characterization, Stephen, of that FERC proposed rule-making on energy storage, because it's not sitting there saying, "We need to create ... new incentives for energy storage. We need to create a special carve out." What it is saying is that we recognize that energy storage is a unique resource. It's different from other resources, and we need to make sure that the ISOs and RTOs are designing their market rules so that we know how energy storage can play within their markets.
One of the challenges right now in capacity markets in particular is that they'll have open-ended rules. It's not entirely clear how energy storage can play and whether it can qualify, so I don't view that as being ... selecting a particular technology as a winner. It's just saying you need to design your rules with this in mind so that we know how it can play. Then if it can play, it can ... if it can compete, it wins. If not, it doesn't.
The other thing I would say is that so, you're right, the policy recommendations in this study, and this one in particular which talks about valuation of essential reliability services or ancillary services is reasonably anodyne. I think you could, in a vacuum, everyone could agree to it. It talks about fuel neutral markets and energy storage and demand response could play in those markets alongside coal and nuclear and anything else.
I think the reason that you're getting all this pushback from environmentalists and from others is the context around which the study comes out, which has nothing to do with what's actually in the study itself, so I'm not arguing against anything in the study here, but the incoming chairman of FERC, Neil Chatterjee, recently said that he thinks coal and nuclear should receive additional compensation and recognition for the value that they provide to the grid. Obviously, the president has come out widely in favor of coal. Those are resource-specific things that in a broader context around which the study's getting released, I think, give people who are not in favor of one or both of those resources some pause. It seems to me to be reasonable to factor that in when you think about how the study might ultimately get used, whether or not the study itself looks reasonable.
Travis Fisher: I suppose the only piece I would push back on there is I mean the policy environment has changed quite a bit with respect to coal. I think, it really ... the previous admin had, as I would characterize it, sort of a pretty outward facing blunt anti-coal agenda. I think just moving from that to sort of a coal neutral point of view, that's going to come off to a lot of people as being incredibly pro-coal. I think ...
Shayle Kann: Sure. I think that's fair.
Travis Fisher: ... the fuel neutral elements that I've seen even within this admin or outside of it, it really is ... there are a lot of free market folks who are just saying, "Let's take the thumb off the scale." That in itself is going to feel to a lot of folks like we're putting a different thumb on the scale. I would just push back on that that of course, it's going to feel that way. If not wanting to subsidize very specific technologies is the same thing as being against them, then that is of course going to come off as anti-wind or anti-solar just by the fact of saying that we should stop subsidizing them.
Stephen Lacey: Right. Then, this is why brought up climate change earlier because I do think that when we talk about putting a price on carbon, it does materially change the conversation, so you can put in place these more technology neutral policies but then over top layer some kind of carbon pricing and put a value on those externalities of each technology, and do something that is more technology neutral, but still gets us to broader environmental aims. I know that's well beyond the scope of this study, but I think very important for this conversation, at least in the way I see it, there are two other areas. We've been going for a while now, so I really want to hone in on the last one that we were thinking about discussing.
The other one is this bulk power system resilience. You want to issue more guidelines and planning for transmission entities to think about valuing resiliency into new and existing infrastructure, and that's something that's been ongoing for a while particularly since Hurricane Sandy, so I think a more mature conversation. The one about research and development of next-generation grid reliability and resilience tools was quite interesting to me, because a lot of folks said, "This is a fantastic set of recommendations. More R and D on new tech to improve utility operations, grid operations, consumer efforts to enhance system reliability, these are all great things."
Interestingly, some of the things within DOE like ARPA-E were not really mentioned, and also ... and it's something that we wrote about at Greentech Media too, one of our criticisms of the report was that there are a lot of distributed resources and things going on within DOE that weren't really mentioned or talked about very much. Can you just unpack that set of recommendations, and talk about why more specific DOE initiatives weren't highlighted in the report?
Travis Fisher: Sure. I can say that even if we try to be ... well, we did try to be as comprehensive as possible, there are going to be certain things that we didn't touch on, and that has more to do with sort of the time crunch than ... One thing I don't want folks to do is read into any lack of something in the study and say, "Well, it was intentional, there's the new policy of the DOE because they omitted something."
As a broad point, though we, at different stages of the drafts, have included very specific programs. I think that was the ... the risk there was that if you start naming programs, then all of a sudden, it becomes clear what you're talking about and what you're not. Instead of using very specific names of programs, we backed off of that and said, "Look, there's a general R and D agenda that needs to be accomplished here, but we're not going to highlight very specific programs and leave others out." Even if the omission were by accident, I don't think it would be ... As we drafted it, it didn't make sense to call out some and leave some out.
Shayle Kann: To be fair, it does talk about ... I mean, one of the other big ones beyond RPE that I think covers a lot of the things that are listed in here does mention the grid modernization initiative, which is doing a lot of the same stuff and is important, I think. I like this recommendation. I think pretty much everybody probably likes this recommendation. The hope, I guess, would be that the budget appropriation is there to support further R and D to the extent that DOE is doing it, and that that allocation goes toward these types of programs, whether it be the existing programs like RPE and grid modernization initiative and that kind of thing, or a new one to do specifically what's discussed in here.
Travis Fisher: Yeah. I'll just note that the GMI is going to go forward. They're doing a lot of very interesting work. I think in terms of things like the GMI and all the R and D that's already going on, we absolutely want to keep that going.
Stephen Lacey: When I first read this study, I immediately thought this is going to be interesting to see how people react to it. I called it a Rorschach test for how you see the future of the grid. It was like the first thing that I thought about when I was reading through it. We saw that in the way certain groups reacted to it. From across the spectrum, you saw a bunch of different reactions. It really says a lot about the values that you bring to this conversation, whether it be free market principles and a skepticism of renewable energy subsidies, or an urgency about climate change and environmental issues, your reaction, your values about those issues necessarily dictates how you react to the study. Are there any conclusions that you've read about the report that you thought were particularly spot on, or that made you think differently about your own conclusions, or about where this research is headed?
Travis Fisher: Well, I thought your analogy was apt. It is a testament to how balanced the the report is, that we got positive feedback from across the board, and that at the end of the day speaks to the staff at the DOE who did an amazing job with this.
Now, I guess in terms of seeing what you want to see in it, that's sort of ... If you take an unbiased, objective look, and ... Each person's set of eyes is going to see something very different, even looking at the same objective picture, and that was the idea of the study was to bring enough people together that it was a comprehensive and objective look. Now, if you bring your own point of view to it, of course you'll see a very different thing.
Even my take on the report is going to be different from someone else on staff. Even the folks who helped write the thing, we all had very different takeaways. In fact, the folks working on the study itself said there's certain things that they learned in the process that they wouldn't have learned if they hadn't been doing the study. I'm sure we each learned a different thing in the crafting of it.
It's a large enough volume of balance things that you can sort of ... if you're the type to cherry-pick, of course there's going to be things that you find to like or to not.
Shayle Kann: I'm excited for a couple of days from now when we're going to get a 6:30 AM tweet about price formation from the president.
Stephen Lacey: Yeah. We'll know who to turn to for analysis when that happens. I guess I'll just wrap up with one last question. I want to go back to your long-held belief in free markets. I'll site that interview that you gave and what you said quote, "It seems conventional wisdom that government should get more involved in energy. It's counterintuitive to argue that government should get out of energy, but I like the challenge." You really ramped up the challenge here. You're now working in one of the biggest bureaucracies in government at DOE. Is that still a guiding philosophy for you at the agency?
Travis Fisher: Yes. I still think the biggest changes are going to come not from folks doing policy to advance a certain agenda, but more to pull back the involvement of the federal government and say, "Look, there's a lot of important work going on, but it's not necessarily our job to guide it."
Stephen Lacey: Travis Fisher is a senior advisor in the Office of Electricity Delivery and Energy Reliability at the Department of Energy. He was also the lead on that big grid reliability study that we've been talking about for so many weeks, finally have. We're so glad that you could come and give us more background, talk through some of the wonk. We really appreciate you being here.
Travis Fisher: Of course. Thanks, guys.
Stephen Lacey: Shayle, how did you feel about the conversation?
Shayle Kann: I thought it was really interesting. I thought Travis did a good job of explaining where he stands on issues and how the report came together. I thought it was interesting that his views have evolved since some of the public statements that he made a couple years ago that have gotten such a public outcry since it was known that he was the lead author of the study, so it was really illuminating for me.
Stephen Lacey: All right. Well, again, if you want to interact with us, share your thoughts on Twitter, you can find both me and Shayle. You can also find Travis there on Twitter and send us an email, firstname.lastname@example.org. Put a review up on iTunes if you want for the interchange, helps us find listeners, and send a link to your colleagues, if you like this show, or your friends, whoever's the energy geek in your life. Thanks again for listening. Shayle, thanks for taking the time on this one. I know you spent a lot of time over the weekend preparing and really trying to understand some of the recommendations. Good stuff.
Shayle Kann: Yeah. I'm going to stop thinking about price formation for a while now.
Stephen Lacey: Well, you suggested that we're going to have a future episode on that, so we'll see. With Shayle Kann, I'm Stephen Lacey. This is The Interchange weekly conversations on the global energy transformation from Greentech Media. We'll catch you next time.