The following is a contributed article by Michael Goggin, Vice President at Grid Strategies.
Movie sequels often recycle the themes of the original. Unfortunately, the National Energy Technology Laboratory's recently released second volume to its 2018 power grid resilience study is no different.
NETL's first volume, released amid DOE's misguided efforts to bail out uneconomic coal and nuclear plants, relied on fundamental methodological flaws that led it to conflate coal's poor economics with resilience. Volume II also makes basic logical errors. It ignores how markets self-correct to meet electric reliability needs, inflates the role of fuel supply, and understates the role of renewable energy, transmission, energy storage, demand response and energy efficiency in improving resilience.
In reality, our grid is resilient and will remain so without resorting to bailouts for the oldest and dirtiest power plants supplying our electric grid.
The power of markets
In any competitive market, reductions in supply or increases in demand cause prices to increase. These higher prices in turn cause demand to decrease, or supply to increase, bringing supply and demand back into balance.
The NETL analysis overlooks this inherent power of markets to self-correct. The centerpiece of NETL's analysis is a prediction of electricity and gas price increases due to the retirement of so-called "at risk" power plants.
But this prediction misunderstands how markets work. A power plant will only retire if price signals indicate it is not needed.
If a power plant is needed, prices will increase until those plants choose not to retire, or until lower-cost supply enters the market to fill the demand. (In rare cases, if the localized power system can't handle a retirement without reliability issues, the grid operator can pay a plant owner to stay on line for a short time.)
NETL also ignores cost savings from retiring truly uneconomic power plants, which likely more than offsets any increase in real-time energy market prices. Paying higher spot market prices for a few hours is cheaper than maintaining uneconomic power plants year-round.
Electricity customers in PJM, the nation's largest grid operator, pay $10 billion annually just to cover the fixed costs of generators through PJM's capacity market, even though it has far in excess of what is needed to ensure the optimal level of reserve capacity. Reducing this surplus would undoubtedly also lower electricity prices.
Fuel supply does not equal resilience
NETL also falls into the trap of again conflating on-site fuel supply with resilience. It assumes that "baseload generation units — such as coal and nuclear generation — are critical to providing reliable and affordable electricity during extreme weather events."
But the data does not support this circular argument.
First, a Rhodium Group study found that, between 2012 and 2016, fuel supply issues were responsible for just 0.00007% of lost customer service hours — and nearly all of which was attributable to issues with a coal plant. Moreover, during the 2014 Polar Vortex, the 2018 Bomb Cyclone and a 2011 cold snap in Texas that resulted in rolling blackouts, dozens of coal power plants failed due to frozen equipment and broken pipes, yielding an outage rate comparable to gas power plants.
Coal plants also experience fuel supply interruptions, including disruptions in coal deliveries by rail and barge and freezing and flooding of coal piles. Fossil and nuclear plants can also be forced offline if drought restricts access to cooling water.
NETL also incorrectly argues that baseload plants "are vitally important to meeting U.S. energy needs as more intermittent electricity sources, such as wind and solar, come onto the U.S. electricity grid." In reality, coal and nuclear power plants fail to provide flexibility and other needed reliability services, inhibiting the growth of renewable energy.
In a new twist, NETL's newest report uses this mistaken focus on fuel supply to support spending $500 million to $1 billion on gas pipeline expansions. However, NETL concedes that its study "looked only at natural gas pipeline investment needs to mitigate the outcomes of generation retirements. Several alternative solutions exist; however, they were beyond the scope of this study."
For example, NETL admits that it ignored the capability of many gas generators to run on petroleum products, even though these dual-fuel resources provided critical energy during the Bomb Cyclone in New England.
Clean energy technologies increase resilience
NETL also fails to consider the resilience contributions of various clean energy technologies. The report completely ignored cost-effective solutions like energy storage, demand response and energy efficiency, and minimized the contributions of renewable resources.
NETL's analysis only modeled large deployments of renewable energy in the Midwest, which may explain why that region also saw the smallest electricity and gas price increases. Previous studies by both PJM and the New England grid operator confirm that portfolios with large amounts of renewable resources are immune to fuel price risk and are among the most resilient.
NETL also dismisses transmission's resilience value, saying that "without adequate resilient generation supply, the question of transmission resilience effectively becomes a vacuous truth." That response misses the primary benefit of transmission investment: capturing geographic diversity in electricity supply and demand to more cheaply meet peak electricity demand, while also increasing resilience by providing more pathways to deliver power to customers.
The recent cold snaps, like almost all risks to the power system, affected only limited geographic areas. During the recent Bomb Cyclone and Polar Vortex events, regions experiencing the worst of the cold snap used transmission to import power from neighboring areas that were not as hard hit or that had abundant renewable generation. Likewise, uneconomic power plants can safely retire in part because existing or new transmission can fill holes in the system.
In short, NETL's sequel is just as disappointing as the first installment. Both reports fail to understand how markets and grid systems work, fail to meaningfully analyze resource performance, and understate the value of the full range of energy technologies now being deployed at scale.