Solar and Wind Are Coming. And the Power Sector Isn’t Ready. - By David Roberts

The rise in renewable energy will scramble the decision making of grid managers.

The US electricity system is at an extremely sensitive and uncertain juncture.  More and more indicators point toward a future in which wind and solar power play a large role.  But that future is not locked in.  It still depends in large part on policies and economics that, while moving in the right direction, aren’t there yet.

And so the people who manage US electricity markets and infrastructure, who must make decisions with 20-, 30-, even 50-year consequences, are stuck making high-stakes bets in a haze of uncertainty.

That uncertainty has increased markedly under the recent Republican administration (somewhat ironically, given its oft-stated goal of “regulatory certainty”).  Under President Obama, the feds established a consistent cross-agency push toward clean energy.  The long-term trajectory was clear.

Now it’s been thrown into doubt.  President Trump has embraced fossil fuels, and the owners of struggling coal plants are appealing to the Federal Energy Regulatory Commission (FERC) for bailouts.

Should utilities and market managers bet that the Trumpian revolt against modernity will succeed in slowing the growth of renewable energy?  Or should they bet that it’s a passing phase and renewable energy will triumph?

A fascinating bit of new research from the energy geeks at Lawrence Berkeley National Lab (LBNL) sheds some light on the stakes involved.

In a nutshell, things will look different in an electricity system with lots of variable renewable energy (VRE) — different prices, a different shape of demand, different timing, different needs — and if the people managing the electricity system bet on low VRE and get high, they are going to screw up all sorts of things.

If the US gets serious about renewables, the electricity system will look very different
As of 2016, wind and solar power — VRE — provide 7.1 percent of US electricity. VRE affects utility and market decisions, but it is not yet central to them. The LBNL team (Joachim Seel, Andrew Mills, and Ryan Wiser) notes that “many long-lasting decisions for supply- and demand-side electricity infrastructure and programs are based on historical observations or assume a business-as-usual future with low shares of VRE.”

But what if VRE takes off?  What if it hits 40 or 50 percent of national electricity supply by 2030? (Climate hawks would prefer an entirely decarbonized power sector by then; neither goal will be possible without a serious national policy push.)  Would high VRE penetrations substantially change the decisions that energy regulators, policymakers, and investors need to make?

In a word, yes.  They would.

The team modeled the effects of high (40 percent) VRE and found several notable changes relevant to the operation of wholesale energy markets.  Here they are all at once, in a giant, info-packed chart!

Now that your eyes are bleeding, let’s back up and walk through the changes.

The team modeled four 2030 scenarios:  a baseline, with VRE shares frozen at 2016 levels, and three high-VRE scenarios, one that’s wind at 30 percent share and solar at 10 percent, one that’s the reverse, and a “balanced” 20-20 scenario. They ran these four scenarios for each of four energy markets in the US:  the Southwest Power Pool (SPP) covering Kansas, Oklahoma, and portions of surrounding states; the New York Independent System Operator (NYISO), the California Independent System Operator (CAISO), and the Electric Reliability Council of Texas (ERCOT).

Here are some of the results, which will throw wholesale markets into a new equilibrium.

1. VRE reduces average wholesale power prices.
In all high-VRE scenarios, in all markets, average wholesale power prices go down.  Depending on the scenario and region, the drop is anywhere from $5 to $16.  Note that average prices fall the most under the high-solar scenario, in every market but ERCOT.  Unlike the other states, Texas is a bit isolated, running its own grid with few interconnections to other grids through which it can import or export power.  It has to deal with all that solar on its own (more on that later).  Lower prices are good for consumers but bad for owners of big, uneconomic coal and nuclear plants, who rely on high prices to keep running.  (Yes, it is a peculiar market in which most of the people responsible, including the president, view low prices as a threat.)
2. VRE bumps fossil fuels off the grid.
In high-VRE scenarios, markets see anywhere from 4 to 16 percent retirement in “firm capacity,” i.e., coal, oil, and steam turbines.  The exception is CAISO, which sees a small, 2 to 4 percent boost in firm capacity via the growth of natural gas.  (Natural gas also grows in SPP and NYISO, though it’s offset by coal and oil retirements.)  Notably, VRE reduces the amount of energy generated from fossil fuels (MWh) much faster than it reduces capacity (MW), anywhere from 25 to 50 percent (the most in NYISO).  Basically, every new kWh from VRE displaces a kWh from fossil fuels. 
3. VRE makes periods of very low prices and very low emissions more frequent.
Depending on the market and scenario, high VRE buildout reduces overall carbon emissions anywhere from 21 to 47 percent and “leads to an increase in frequency of hours with very low marginal emission rates ranging from 5% of all hours in CAISO (wind scenario) to 31% in SPP (solar scenario).”  Also more frequent under high VRE are periods in which wholesale power prices are extremely low, under $5 a MWh.  (It’s these periods that so wreck the economics of big coal and nuclear plants.)  The effect is especially pronounced in ERCOT under high solar.

Read more at Solar and Wind Are Coming.  And the Power Sector Isn’t Ready.