Dive Brief:
- Regional concerns over future energy supplies and political pressure over the new EPA emissions plan have led the Federal Energy Regulatory Commission (FERC) to rethink capacity markets and how they are structured.
- Many power plant owners feel capacity markets don't set high enough prices to cover the cost of generation, making their operations unprofitable to run.
- Possible solutions to the capacity market question include short-term increases in electricity prices to encourage more investments in generating capacity, longer-term contracts for power to ensure revenue for generators over several years, and state regulations and policies to incent utilities to build generation that won't compete in the markets.
Dive Insight:
Long-term contracts or giving utilities the right to build generation outside the markets could offer a solution to the capacity issues, finds a new study from the Electric Markets Research Foundation, a utility-backed, anti-regional market body.
"We think these [capacity] markets are not going to be up to the task, and may be severely tested, I think, if the EPA Clean Power Plan, in any variation of the current proposal, were to go into effect in the next two years," said co-author Mathew Morey. Most generation investments are made taking into account several decades of use, so one or two-year generation contracts are no longer enough to make investors feel comfortable.
Some disagree that capacity markets are not the best solution to the current problem. ICF International's George Katsigiannakis said he hoped the "capacity market experiment" wasn't coming to an end. "Don't forget: The capacity markets haven't been there that long, just since 2007, 2008. There is lot of learning still to do and experience to be gained," he said.
If FERC allows for multiple exceptions to the rules, then the markets will have ultimately failed anyway as they will have been undermined, added John Shelk, president of the Electric Power Supply Association.