[UPDATED] Major Power Players Issue Mixed Reactions to DOE’s Controversial Grid Study

The Department of Energy’s (DOE’s) much-anticipated study on grid resilience and reliability elicited immediate chatter from a variety of industry stakeholders, from power generators and trade groups to environmental and clean energy advocates.

The 187-page study essentially notes that unprecedented changes are transforming the electricity industry. Over the past 15 years, market forces—namely, cheap natural gas, falling costs of renewables, and stagnating demand growth—have driven mass baseload retirements, it says. The economics of traditional baseload generators, particularly coal and nuclear power plants, have also been negatively affected by state and federal regulations, mandates, and subsidies. And it points out that renewables, which have benefited from state policies, have lower variable operating costs than traditional baseload generators and are dispatched first, displacing baseload resources when they are available.

The report also surveys the effectiveness of wholesale electricity markets, concluding that the changing nature of the electricity fuel mix have challenged the original policy assumptions that shaped the creation of those markets. Higher penetrations of variable renewable energy will require “careful consideration of continued market evolutions,” it says.

[Related slideshow: “What 10 Charts from the DOE’s Grid Study Reveal About the State of U.S. Power“]

Trade Groups, by Fuel Type, Highlight Grid Contributions

The Edison Electric Institute (EEI), an association that represents all U.S. investor-owned power companies, on August 23 said it was still reviewing the study. But EEI President Tom Kuhn noted that the trade group has “long advocated that our customers are best served by public policies that promote a balanced and diverse energy mix, which includes both traditional and renewable energy sources, and that also recognize the vital role 24/7 energy sources play in sustaining a secure, reliable, and resilient energy grid.” Kuhn added that the group values investments in “more robust infrastructure, while maintaining a diverse energy mix that eliminates single points of failure.”

The American Coalition for Clean Coal Electricity, a partnership of industries involved in producing coal power—and a group that strongly opposed Obama-era power plant regulations—commended Energy Secretary Rick Perry for the study.One of the biggest challenges is how to preserve the nation’s coal fleet so it can continue supporting a reliable and resilient electricity grid. We look forward to working with policymakers at the national, regional, and state levels to value the important attributes of the coal fleet,” said its president and CEO, Paul Bailey.

Nuclear Energy Institute President and CEO Maria Korsnick said that the grid study reaffirmed the nuclear industry group’s view that nuclear power is key to a resilient grid. “In the 10 years since the last comprehensive grid study by our government, electricity markets have changed radically,” she said. “Today electricity markets do not properly credit nuclear energy for the numerous benefits it delivers, forcing plants to close years before the end of their useful lives and compromising grid reliability and resiliency in the process.”

In a statement on August 23, Korsnick also urged the Federal Energy Regulatory Commission (FERC) to implement the study’s recommendations to value resiliency and other undervalued attributes that nuclear energy delivers to the grid. New York and Illinois have “acted to preserve nuclear plants,” she noted, and a host of other states are considering similar measures. “States are engaging because FERC has been so slow to act on flaws in price formation. The situation is dire, plants are closing—now is the time to act,” said Korsnick.

Tom Kiernan, CEO of the American Wind Energy Association, also hailed some of the DOE’s recommendations. “In particular, DOE’s recommendations to value essential reliability services, which wind provides; to minimize regulatory barriers to energy production; and to accelerate infrastructure and transmission development are prudent and will help continue America’s wind power success story,” he said. Wind energy contributes to the grid services that “incumbent baseload also provides, and will continue to be a growing part of a reliable, resilient U.S. electric grid,” he noted.

The Solar Energy Industries Association (SEIA), meanwhile, said it was still reviewing the report, but underscored solar energy’s many benefits. SEIA President and CEO Abigail Ross Hopper said that “it’s been proven time and again that a diversified electricity mix is good for the overall system and poses no threat to the reliability of our nation’s grid. On the contrary, solar and other renewables provide significant cost savings, relieve pressure on our nation’s infrastructure and improve the grid’s overall performance.”

Regulators Acknowledge Study’s Recommendations

In a statement on August 24, newly nominated FERC Chairman Neil Chatterjee said the study highlights “many activities that the Commission is carefully considering, including examining ways to enhance wholesale electric capacity markets and improve price formation in those markets, to increase electric and gas coordination, and to assure bulk power system reliability and resilience.” FERC will remain focused on these and other issues, which, he noted, “are critical to maintain the nation’s competitive wholesale electric markets and keep the lights on.”

The North American Electric Reliability Corporation, an independent regulatory authority tasked to assure reliability and security of the bulk power system, said simply that it “appreciates DOE’s focus on reliability and resiliency,” and thanked the agency for recognizing its work on these matters.

Meanwhile, for state regulators, the effort undertaken by the DOE was commendable. “The findings of this study reflect the chief interests and concerns of state regulators, whose mandate is to serve the public interest by ensuring safe, adequate, reliable and affordable energy service,” said John W. Betkoski III, president of the National Association of Regulatory Utility Commissioners.

Power Companies Call for More Action

The handful of power companies that issued reactions on Thursday generally supported the report’s recommendations, but they urged more action from the federal government.

NRG Energy,  the nation’s largest independent power producer which recently moved to sell as much as $4 billion in assets to lower debt it blames on market troubles, called on FERC to expedite its efforts to improve energy price formation in the organized markets and address ways of valuing enhanced reliability services in a “fuel and technology neutral” way. “These efforts—and not expensive and market-destroying state subsidy programs to benefit particular generating facilities—would do more than anything else than anything else to ensure resiliency and reliability in an environmentally responsible and consumer-friendly way,” it said.

Exelon Corp., the nation’s largest nuclear generator and a company that has lobbied for state subsidies to help keep some of its economically beleaguered nuclear plants open, also said it was pleased that the DOE recommended “urgently needed energy market reforms.” Those reforms, it said, “will help preserve clean energy sources and ensure critical American assets remain part of the mix, including baseload nuclear plants that provide more than 60 percent of our nation’s emissions-free energy.” The company also urged FERC and regional transmission operators to swiftly enact “common-sense reforms that will help safeguard the reliability, resilience, diversity and affordability of our supply of electricity.”

Minneapolis-based Xcel Energy, which is the nation’s leading utility wind provider and recently announced the largest multi-state investment in wind capacity in the U.S., said the study seemed to be generally consistent with its own experience. “We look forward to working with Secretary Perry and other federal and state policy makers to advance the nation’s energy policies and help the electric grid accommodate higher levels of renewable, natural gas and other clean energy resources,” Frank Prager, vice president of Policy and Federal Affairs for Xcel, said in a statement.

Southern Co., which is building two nuclear reactors in Georgia with other entities and recently scrapped a $7.5 billion lignite gasification project in Mississippi, said it supports a strong energy grid. “Southern Company will continue our support of a comprehensive national energy policy that develops the full portfolio of generation sources—natural gas, nuclear, 21st century coal, renewables and energy efficiency; embraces innovation and promotes America’s financial integrity,” it said.

Emerging Criticism

Analysts generally noted that the grid study affirmed what the industry has known for some time. Jack Weixel, vice president at PointLogic Energy in Denver, told POWER: “The study confirms what market participants have known for some time; lower natural gas prices brought on by an increase in domestic production provide a tremendous cost advantage to utilities and merchants who employ gas-fired generation sources to deliver electricity.” Weixel, whose company provides oil and gas fundamentals data along with micro and macro trend analysis for the energy sector, said lower natural gas prices in summer 2016 “meant at least 2.3 Bcf/d of incremental gas was burned each day [last summer] versus this summer,” based on his company’s chart of summer modeled power burn for the lower 48 states.

But according to the Rocky Mountain Institute, an independent nonprofit that works to accelerate the adoption of a market-based transition from fossil fuels to renewables, the report “misses out on broader opportunities.” The U.S. has “an unprecedented opportunity to rethink the grid, and the transition investment towards distributed and renewable energy technologies that offer the same (and often better) reliability services as conventional power plants, at lower cost, and without carbon emissions.”

Graham Richard, CEO of Advanced Energy Economy, a trade association representing “advanced energy” sources to include energy efficiency, demand response, energy storage, renewables, and other distributed energy resources, said: “[The report] seriously overstates the challenges associated with new energy resources. It also implies that certain power plants now losing out in the marketplace make an irreplaceable contribution to reliability and resilience, which is not the case. What is happening in our power grid is a natural process of technology progress and market competition.”

Some environmental groups, meanwhile, outright questioned the credibility of the report. The Sierra Club, for example, has railed against the report’s secrecy before its release, even filing a lawsuit against the DOE under the Freedom of Information Act for access to basic information on the report’s premises and consultations. The official grid study is an “effort to pressure market operators, the [FERC], and utilities to bail out aging coal and nuclear plants by forcing electricity customers to pay more for their expensive electricity,” the organization said in a statement on August 23.

“Some of the report’s recommendations echo the unsubstantiated claim that coal and nuclear plants are needed for grid reliability, and recommend that rules be changed to compensate them regardless of their competitiveness against cleaner, cheaper, and more flexible energy sources like wind and solar. But the facts throughout the report don’t support those conclusions.”

The Natural Resources Defense Council (NRDC), an international think tank that keeps tabs on the world’s environmental measures, including in India and China, issued as harsh a rebuke of the grid study. “DOE’s grid study reads like a schizophrenic attempt to support outdated, uncompetitive, and highly polluting power plants. DOE Secretary Perry appears determined to mold America’s transmission grid around support for fossil fuels, but the facts in his own report don’t back up that approach,” said John Moore, director of the Sustainable FERC Project housed within NRDC.

Moore said that the recommendations ignore renewable energy’s contributions to a reliable power system. “They also include misguided proposals to gut environmental rules for coal and nuclear plants, and to pay fossil resources for reliability services that DOE hasn’t demonstrated are necessary.”

The organization has argued, citing a report from The Brattle Group (which it commissioned), that the notion of “baseload” generating plants isn’t clearly defined—and it is outdated. In that report, the study authors suggest that “baseload” does not refer to any specific operational services provided by generators. It also does not equate to 100% reliability year-round, because power plants can suffer unexpected outages and routinely shut down for extended maintenance periods.

The Baseload Dispute Explained

In its August 23 grid study, the DOE attempted to define baseload generation “as power plants that are operated in baseload patterns—that is, plants that run at high, sustained output levels and high capacity factors, with limited cycling or ramping.” The DOE made the distinction between “baseload generation” and conventional generation, which it uses to mean coal, nuclear, and natural gas power plants, regardless of how they are operated. The agency offered explanations from grid operator PJM Interconnection, which defines baseload generation as “those units which operate the great majority of hours of the year to meet load requirements,” as well as from the North American Electric Reliability Corp., which defines “baseload” as a term used to “describe generation that falls at the bottom of the economic dispatch stack, meaning [those power plants] are the most economical to run.”

Variable energy resources such as wind and solar are beginning to serve more of a minimum load, albeit at variable or intermittent output levels, and the higher penetration of these sources has necessitated more gas-fired units to help balance variability, the report says. “These factors, among others, have collectively lessened the immediate need for traditional baseload resources in certain regions, but still speak to the need for baseload generation,” it concludes.

—Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine). Darrell Proctor,  a POWER associate editor, contributed to this report. 

Update (Aug. 25): Adds reactions from FERC, NERC, NRG, Exelon, Xcel, and Southern Co.