Dive Brief:

• As utilities increase the amount of renewable energy in their fuel supply mixes, the associated need for an increase in resource buffers could lead to oversupply that would increase power price volatility and grid reliability costs, said Moody’s Investors Service in a Wednesday report.
• “Because wind and solar power generation depends on weather conditions and is thus not dispatchable, load-serving utilities will likely build in a cushion of supply to enhance reliability and compensate for resource volatility,” the report says.
• Clean energy groups said there are workable solutions to the concerns Moody’s posed in its analysis, which Advanced Energy United Senior Fellow Ryan Katofsky said took a “somewhat narrow view of how renewable energy is changing wholesale electricity market dynamics.”

Dive Insight:

Moody’s analysis “focused on investor profits as opposed to how renewables may lower average wholesale energy prices for utility customers while also reducing the negative impacts of rising and increasing volatile fossil fuel prices, particularly natural gas,” Katofsky said in an email.

The credit ratings agency said that reliability costs associated with backstopping renewables could rise to $435 billion a year globally if the International Energy Agency's forecast of 9.9 TW of solar, wind and hydro capacity being added by 2030 is accurate.

“So far, battery storage has failed to alleviate the growing price gap as the growth of new renewable generation outpaces new storage,” Moody’s said, adding that while battery storage could “reduce the gap” between daytime and nighttime power prices, new battery storage would need to exceed new renewable capacity instead of falling behind it.

Katofsky said that new storage and greater demand flexibility will improve renewables integration, and that U.S. states leading the clean energy transition “are not just focused on the buildout of bulk renewable generation but also on these other innovations.”

Seth Mullendore, president and executive director of the Clean Energy Group, said Moody’s concerns are all “solvable issues.”

“With proactive grid planning and deployment of flexible resources, such as energy storage and virtual power plant aggregations, high levels of wind and solar can be reliably and cost-effectively integrated onto the grid,” he said.

Moody’s said there are particular price volatility risks for the Electric Reliability Council of Texas, where large expected solar growth could drive down daytime power prices. The report found potential for offshore wind under construction to have a stabilizing and price-lowering effect on New York City and Long Island’s supply-constrained power markets.

“New York State has a strict energy mandate to source 70% of its electricity needs with renewables by 2030 and to achieve a zero-emissions electric grid by 2040,” the credit agency said. “Thus, we expect capacity markets in states with strong decarbonization goals could change their market structures over time to differentiate capacity from sources that emit zero, low or high levels of greenhouse gases, with a goal to phase out the latter.”

Moody’s said that these hypothetical market reforms would be “accelerated” by the development of reliable, cost-effective zero-carbon flexible generation such as green hydrogen, small modular nuclear reactors and solid oxide fuel cells. 

“Rising levels of renewable generation do not inherently result in greater electricity market price volatility, nor are renewables a justification for sounding reliability alarms,” Mullendore said. “Overreliance on fossil gas is responsible for extreme price spikes in ERCOT and other regions across the country and has been the primary cause of grid instability and failure in the face of extreme weather conditions.”