How Wholesale Electricity Markets Can Get Us to a 100% Clean Energy Future

Posted by Prusha Hasan and Dylan Reed on Jul 21, 2020 9:38:39 AM

CLEAN Future Act blog post Final-730

Over the past two years, climate change has resurfaced as a top policy priority in Congress with policymakers from both parties offering ways to reduce carbon emissions. AEE has actively engaged in this conversation, testifying to Congress on how the country can achieve a 100% clean energy future in the power sector cost effectively. While many, including AEE, have focused on the need to establish a strong and enforceable target for meeting a 100% clean future, less attention has been paid to the ways wholesale electricity markets could drive toward this target, lowering consumers costs, expanding consumer access to clean energy, and reducing carbon emissions. That is, until now, as federal lawmakers are turning to expansion and improvement of wholesale markets as well as reducing barriers for advanced energy to access these markets as part of their plans.

In 2020, House Democrats have released two legislative frameworks for achieving a 100% clean energy economy. In January, Democrats on the House Committee on Energy and Commerce announced a new plan,  entitled the “CLEAN Future Act.” In June, Democrats on the House Select Committee on the Climate Crisis released its own roadmap for aggressive climate action. While these frameworks differ on some specifics, both clearly demonstrate that wholesale markets are essential elements for achieving a 100% clean energy future in the fastest and most cost-effective manner. So what do these proposals call for and how would advanced energy benefit? 

The House CLEAN Future Act draft legislation includes various economy-wide policy measures, but two prominent provisions address wholesale electricity markets.

RTO/ISO Participation:  States and utilities currently opt into these markets voluntarily, but this legislation would make RTO/ISO membership mandatory for all electric providers. The CLEAN Future Act directs all states to place transmission facilities into an RTO/ISO market within two years.

This provision is key because RTOs/ISOs drive billions of dollars of annual savings for electric customers. For example, Western states coordinated to create a regional “energy imbalance market” that, while less inclusive of all wholesale electricity transactions than a full RTO, has garnered almost $920 million in benefits since 2014. Similarly, MISO (the RTO serving the Midwest) estimates the region realized $12.2 billion to $16.8 billion in cumulative savings from 2007 to 2015. 

Cost savings aren’t the only benefits of expanded wholesale markets. A larger market spurs innovation and drives greater advanced energy deployment. For example, advanced energy technologies – including wind, solar, and energy storage – take up about 95% of the interconnection queue in ISO-NE, New England’s grid operator; over 90% of the queue in Texas’ ERCOT market; and more than 70% of the 13-state PJM queue. 

Right to Clean Energy: Wholesale markets also allow large customers, such as companies with sustainability or clean energy commitments, to access clean energy to power their operations. The CLEAN Future Act ensures that customers in all states have the opportunity to purchase clean energy. Currently, regulatory constructs, policy barriers, and/or utility business models in states that are not part of wholesale electricity markets prevent customers from having a choice, even when lower-cost clean energy resources are available to meet their energy needs. If implemented, this legislation would increase competition and clean energy deployment without any increase in government spending.

As more corporations announce sustainability goal, this provision is needed to ensure that they can meet these targets no matter where their facilities are located. To date, corporations across the United States have signed agreements facilitating more than 22 GW of new, voluntary renewable energy investment. In the past year, 80% of these agreements were signed in wholesale markets. This trend is only expected to continue, with an estimated 85 GW of new U.S. renewable energy demand among Fortune 1000 companies by 2030 (for perspective, that is enough power to light 9.35 billion LED bulbs). Yet these businesses face a variety of barriers and unnecessary costs to procuring the clean energy they need to meet their goals. This provision benefits corporate buyers by prohibiting unnecessary regulatory barriers and costs, often created by outdated market designs and/or states rules. 

Similarly, the House Select Committee report notes that wholesale markets are a powerful tool for reducing carbon emissions, but notes that advanced energy technologies need a level playing field to harness that power. The report calls for the rules governing these markets to be modernized to accurately value advanced energy technologies and accommodate state clean energy policies that rely on these technologies. 

Put simply, expanded wholesale markets benefit all consumers. COVID-19 has revealed more than ever our reliance on electric power and the need for a secure, clean, and affordable power grid. The CLEAN Future Act and the House Select Committee give us plans to get there, and wholesale markets provide a critical vehicle for getting there. 

For new briefs on the CLEAN Future Act and the Western Energy Imbalance Market, along with seven other wholesale market briefs, click below.

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Topics: Federal Policy Update, Wholesale Markets