Challenges and Evolution of Power Markets in the Face of Political and Economic Factors
Power markets face challenges due to conflicting policy goals and regulatory structures, impacting prices and generation. Low energy prices, renewable mandates, and new market drivers like low gas prices and renewable energy influence market dynamics. The emphasis shifts towards rewarding generation attributes, efficiency, and cost in maintaining reliability, leading to possible stranded cost issues.
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Can power markets survive when they don t do want politicians want them to? James Bushnell University of California at Davis and NBER
The Issues Many States have differing policy goals and regulatory structures These policies almost certainly impact regional market prices Renewable mandates Baseload generation supports Many combinations of retail choice, vertical integration, and in between. Low energy prices are posing serious financial challenges for many classes of incumbent generation. Some of this generation may provide value currently not reflected in market prices (location, flexibility, low carbon probably not baseloadabilty) Question is if/how markets reward generation attributes we previously took for granted.
California Renewable Energy Relative to 33% and 50% Targets 100 Generation in TWh 50 0 20012002200320042005200620072008200920102011201220132014 Biomass Wind Gap to 33% Geothermal Solar Gap to 50% Gap assumes RPS need of 84 or 127 TWh, with 11.7 from outside CA and 5 from DG
The new market drivers The main culprits are low natural gas prices and new renewable energy zero marginal cost less important than lower MC than previous baseload. Renewable mandates main influence is timing of new capacity additions. Ongoing research shows that gas is main driver of low prices in the east Renewables playing a non-trivial role in California
Hourly Utility Scale Solar Output on CAISO System
Reliability is not the Issue: Efficiency (cost) is Institutional structures (ISOs/NERC) have strong powers and incentives to maintain reliability But at what cost? Renewable mandates have contributed to the early obselecense of conventional power plant And are starting to undercut the value of each other now This is creating a new stranded cost problem that is getting politicized nationally
Some observations Policies in CA are changing the power mix and pricing profile of electricity in the west. Market actually seem to be working. Prices are rewarding flexible generation Blunter policies may not be working CA looks to add increasing grid scale solar when its value is approaching zero for months at a time. Policy-makers on the right and the left don t trust markets Carbon pricing plus market incentives probably have produced substantial renewable investment. Coal would be even less economic than it is today.
Thank you James Bushnell, UC Davis Comments drawn from: Bushnell and Novan. Generation Green: Renewable Electricity Supply in the U.S. UC Davis working paper. 2017 Bushnell, Flagg, and Mansur. Capacity Markets at a Crossroads. UC Davis working paper. 2016
