Dive Brief:

• A wide swath of energy and consumer groups criticized a report on power plant retirements released by the North American Electric Reliability Corporation (NERC) on Tuesday, saying it presents unrealistic scenarios and should not be used to influence grid planning.

• The report assessed an accelerated retirement scenario where 30% of coal and 35% of nuclear capacity goes offline by 2022. In that case, NERC officials said some regions may need "new market constructs" and "out of market constructs" to slow the pace of plant shutdowns, along with new natural gas and power infrastructure.  

• Renewable energy, natural gas and consumer groups said the report represents an improvement on a draft document that tested a higher level of coal retirements, but said the final report still includes scenarios that "are not economically plausible" based on current market structures.

Dive Insight:

Debate over NERC's accelerated retirement scenarios reflects the ongoing tension in Washington energy circles over a potential federal bailout for retiring coal and nuclear generators.

This autumn, gas and renewables groups spoke out against a draft version of the NERC report that included a scenario where 60% of coal and 75% of nuclear generation retired by 2022.

The draft advocated grid operators evaluate policies "to maintain necessary levels of essential reliability services and fuel assurance in the future resource mix," S&P Global reported. The language sparked fears in the sector the Trump administration could use it to support a plan to save retiring coal and nuclear generators.

The final report, issued after industry feedback on the draft, removes that reference. In a Tuesday media call, NERC officials stressed that the nonprofit reliability watchdog did not find any urgent threats to grid reliability.

"Right now, if the market operator says you can retire, we're comfortable with that," John Moura, NERC's director of reliability assessment, said on the call.

NERC officials did say, however, that if plant shutdowns approached the level they tested in some regions, grid operators may need to devise new market based payments or outside financial support for coal and nuclear generators.

"In wholesale electricity market areas, market operators should assess whether existing tools are adequate to manage significant levels of generation retirements," Moura said. "New mechanisms should also be explored if necessary, such as new market constructs that value resources differently, or even out-of-market solutions that can control the pace of generation retirements when needed."

Market operators already perform reliability assessments to ensure plant retirements do not cause blackouts, rewarding short-term "Reliability Must Run [RMR]" contracts to crucial generators that are funded by ratepayers.

Moura, however, said these contracts may not be enough to keep critical plants online, particularly in Texas, which saw 4,000 MW of coal generation retire at the end of last year.  

"RMR processes have worked well for individual generators but haven't really been tested in an accelerated retirement scenario when you have a lot of retirements at once," he said. 

Under the accelerated retirement scenario combined with high power demand, NERC's report found that ERCOT and three other balancing authorities had reserve margins that fell below NERC's target reference margin. 

Study design questioned

Many energy and consumer groups took issue with the structure and recommendations of the NERC report. Devin Hartman, CEO of the Electricity Consumers Resource Council (ELCON), said RMR constructs in wholesale power markets are well designed to deal with plant retirements.

"There is no evidence to suggest that RMRs have been insufficient to keep unprofitable generation online," said Hartman, previously an analyst at the Federal Energy Regulatory Commission. "They are specifically engineered to ensure that going forward costs are covered and to guarantee there are sufficient returns of the owners."

Hartman and other critics said the report presents scenarios for generation retirements that are not possible with capacity planning programs in most regions. In every state but Texas, generation capacity is secured years in advance either through market auctions or multi-year utility plans.

"The stress test scenario is not economically plausible based on the existing capacity procurement mechanisms — that refers to both kinds, a capacity market or an [integrated resource plan," Hartman said. "The only way for generation retirements to hit a level that outstrips demand reduction and replacement capacity is political intervention that would close down plants that are otherwise economic. That gets you into the dream world scenario."

Moura acknowledged that in some regions, the level of retirements tested is not likely due to utility planning protocols.

"Three of the four areas we highlighted as a potential risk aren't in markets, they're in integrated resource plans,” he said. “If you talk to a lot of these areas … they kind of got that handled in their IRP processes."

But, he said, wholesale electricity markets could be more susceptible to accelerated retirements, particularly if a future regulatory regime — like a strict emissions mandate or very high wind and solar mandates — causes many plants to retire earlier than expected.

"The thing that really does challenge the retirement process is when you have draconian deadlines," Moura said, referencing NERC's past reliability concerns with mercury and carbon regulations from the federal government. "It is a friendly gesture to look at the potential implications because there's either a number of uneconomic generators on your system or [potential for] emerging federal pressure under a different administration."

That perspective also raised questions among Hartman and other observers.

“Political scenarios can get very creative — everywhere from a deliberate attack to a change in public policy,” Hartman said. “I don’t think it’s NERC’s job to provide an assessment of extraordinary political scenarios and if NERC is going to … they should state that in their set of assumptions and be clear that this is only an outcome if you have economic plants forced to retire.”

Recommendations critiqued

When the draft report became public, a major industry concern was that coal and nuclear generators would use it to bolster their claims for higher market payments at FERC or taxpayer support for their plants.

In response to the final report, the American Coalition for Clean Coal Electricity, a trade group, said it "offers further evidence of the importance of fuel security and generator resilience."

"The NERC study shows that drastic changes to the generating mix should not be made without first understanding the full range of their implications to electric reliability," ACCCE President Michelle Bloodworth said in an email. "We urge regulators and market operators to heed these warnings and to also consider the cost impact to consumers that will come from building new gas pipelines and electric transmission infrastructure necessary to replace existing resilient and reliable baseload electric generation with less secure and intermittent resources."

The Nuclear Energy Institute did not respond to a request for comment. When questioned, natural gas and clean energy groups said the report should not result in consideration of higher payments or taxpayer subsidies for coal and nuclear plants. 

"The retirement scenarios incorporated in NERC's assessment are too extreme to offer useful takeaways about reliability," Pat Jagtiani, executive vice president of the Natural Gas Supply Association, a trade group, said in a statement. "Certainly, there is nothing here that warrants or supports the use of out-of-market actions."

Clean energy groups said the recommendations in the report focused too heavily on fuel-based solutions — like storing coal, oil or nuclear fuel onsite — and not enough on contributions of new technologies.

"We are very focused on availability of solid and liquid fuels and we've seen less focus on the ability of advanced energy technologies ... to step in and perform," said Jeff Dennis, general counsel for regulatory affairs at Advanced Energy Economy, a trade group. "We're very focused on single attributes of single technologies and not a broad suite of technologies and how it works together to provide a reliable grid."

Dennis said continued debate over different fuel source attributes is likely to continue in 2019 as FERC assesses coal and nuclear compensation in its resilience proceeding.

"I think we're going to spend 2019 talking about ... the attributes of fuel and other things," Dennis said. "You're going to hear us talking about looking at the whole system and the contributions of emerging and advanced energy technologies."