In 2018, the North American Electric Reliability Corporation (NERC), the organization that oversees the reliability on the North American electric grid, warned of the threat of accelerating losses of baseload sources of power.
At the time, S&P Global Market Intelligence characterized the report by writing, NERC “warns that an accelerated retirement of coal-fired and nuclear power plants over the next several years could lead to power outages, temporary shortfalls in surplus generation and transmission problems in several regions.”
The report was a lightning rod. For those determined not to see a baseload retirement problem or to dismiss fuel-security concerns, the report and the accelerated retirements scenario didn’t deserve serious consideration. For the Department of Energy (DOE), utilities and even the Federal Energy Regulatory Commission (FERC), the report was further evidence that key regional grids were racing towards a reliability tipping point.
Fast forward two years and we’ve arrived. The accelerating retirement scenario is happening. Even before the shock of the COVID-19 pandemic, baseload power plant retirements were only picking up steam.
And now, adding the stressors coming from the pandemic, Steve Winberg, the assistant secretary for fossil energy at the U.S. Department of Energy, recently warned, “we’re seeing potential early retirements on coal-fired power plants… Once they shut down, they just may not restart.”
Winberg is concerned and rightfully so. DOE is engaging with FERC on reliability and the likelihood of accelerating retirements. A particularly cold winter coupled with accelerating retirements and collapsing natural gas production could cause serious reliability and affordability problems precisely when the country can least afford them.
The Urgency to Act has Never Been Greater
Not only did NERC issue a prophetic warning in 2018 but it also offered timely and increasingly important recommendations about what could be done if retirements accelerated.
As Utility Dive reported at the time, NERC officials said that grid operators should consider devising new market-based payments or outside financial support for baseload plants. John Moura, NERC’s director of reliability assessment, said, “In wholesale electricity market areas, market operators should assess whether existing tools are adequate to manage significant levels of generation retirements. 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.”
There are multiple ways to get there but the urgency to act, to ensure that essential, fuel-secure baseload power plants remain part of a balanced grid, has never been greater. While FERC has studied the reliability issue, largely relying on backward looking analysis, we’ve entered completely uncharted territory with no precedent.
Capacity markets and other processes and mechanisms grid operators use to adjust for power plant losses simply do not move quickly enough to staunch the bleeding. This was precisely NERC’s concern two years ago when it suggested the need for new market constructs or possible out-of-market solutions to address the challenge.
DOE attempted to intervene in 2017 before reliability concerns escalated to a full blown crisis by offering the “Grid Resiliency Pricing Rule”, directing FERC to require wholesale markets to establish rates that better compensated power plants that shore up the reliability and resiliency of the grid. That proposed rulemaking was rejected at the time but it’s exactly the type of measure needed today.
The combination of near-term market conditions, increased volatility in the oil and natural gas sector, and the certainty of accelerating baseload retirements is a recipe for disaster. An affordable, balanced, secure and reliable electricity mix is going to be more important than ever to support recovery from the COVID-19 crisis. The opportunity to ensure American businesses and consumers have it is rapidly slipping through our fingers.
- On May 13, 2020