How an Obscure Pricing Rule and Transmission Holdups Could Put Advanced Energy Resources on Ice

Posted by Dylan Reed on Nov 21, 2019 10:00:00 AM


There are a couple of major issues currently before FERC and Congress that will impact advanced energy resources in wholesale markets. One of them is a decision expected from FERC soon after it regains a quorum of voting members that threatens to force operators of renewable energy facilities to artificially jack up their prices in a way that leaves them uncompetitive. The other, on which FERC has launched a proceeding but is also within congressional purview, involves building the transmission that is needed to get low-cost renewable energy to consumers. Here, and in two new wholesale market briefs, we explore the implications of these two issues for advanced energy resources, especially large-scale renewable energy development.

The first issue concerns a pricing rule under consideration in PJM Interconnection, the nation’s largest energy market. It all began in March 2016, when incumbent generators filed a complaint at FERC charging that PJM’s Minimum Offer Price Rule (MOPR) - which sets a price floor for new generation resources to prevent below-cost bids from new conventional power plants looking to capture market share - failed to deal with “price suppression” allegedly caused by state support for certain resources.  

Rejecting two options offered by PJM, FERC directed the regional grid operator to extend its MOPR to all new and existing generators, thereby imposing it on resources supported by some state policies, such as wind, solar, and nuclear power. This approach would effectively prevent advanced energy technologies from participating in PJM’s capacity market, hindering competition, increasing energy costs for 65 million customers in 13 states, canceling out clean energy policies supported by a majority of states in the PJM region, and interfering with the ability of large consumers to voluntarily procure clean energy.

 While market participants are currently awaiting action by FERC and PJM on this matter, AEE has called on FERC instead to keep PJM’s market fair for all resources by abandoning its proposed MOPR expansion, or at a minimum, ensuring that any expanded MOPR only applies to resources constructed or operated with an intent to suppress market prices. Specifically, AEE wants FERC to make clear that the MOPR will not apply to renewable energy credits (REC) as alleged instruments of price suppression. That’s because REC prices, which are subject to supply and demand in markets of their own, are volatile and unpredictable, so operators generally do not figure in REC income when making capacity bids.

 Another issue has to do with the key role that transmission buildout plays in renewable energy growth in the United States. Renewable energy is currently one of the most affordable energy resources in the United States. However, its full development of these resources depends on long-distance interregional transmission, so that renewable energy can flow from high resource areas (e.g., windy areas in the Great Plains) to more populated areas with higher electricity demand.

In 2011, FERC issued Order No. 1000, which required Regional Transmission Organizations and Independent System Operators (RTOs/ISOs) and public utility transmission owners to put interregional planning processes in place. The order created a multi-layer process that has now turned into a significant barrier to moving beneficial transmission projects forward. Planning also occurs on a state-by‐state basis, meaning each state prepares for its own transmission needs, with no regard for the integration of renewable energy across state lines.  As a result, while a renewable energy project can take as little to one to two years to construct, new transmission lines to connect them to customers can take five to 10 years.

FERC could streamline transmission planning, as the Federal Power Act grants FERC the authority to regulate transmission of electricity in interstate commerce and sales. To improve the current laborious system, FERC should revisit aspects of Order No. 1000 with the aim of developing stronger policies to promote interregional transmission. Earlier this year, FERC opened a proceeding on transmission incentives to explore some of these issues, but Congress could also play a role in supporting transmission development across the country. Actions that could be taken by FERC or Congress include:

  • Declare clear policy goals that make construction of long-distance transmission a priority
  • Require transmission owners and developers to develop mechanisms for interregional projects
  • Promote improved interregional coordination and encourage expansion of regional markets
  • Ensure there are no undue delays in the permitting of transmission lines

With new briefs on these two issues, and others available and under development, AEE’s Wholesale Market Briefs offer policymakers and advocates ways to understand the complex issues that are standing in the way of technology-neutral markets that let advanced energy technologies compete on price and performance. To download AEE’s Wholesale Market briefs, click below.

Download The Briefs

Topics: Federal Policy, Wholesale Markets