Renewables Growth Impeded by Outdated Electricity Market Rules

Renewables Growth Impeded by Outdated Electricity Market Rules

Declining costs and growing consumer demand are driving expansion in U.S. renewable energy, particularly wind and solar. This growth is being limited, however, by outdated wholesale and distribution market rules, according to a recent report from the Wind Solar Alliance.

Customer-Focused and Clean: Power Markets for the Future” makes a number of keen observations about the rules governing electricity markets and recommends changes to promote greater equity among power sources. Though wind and solar generating capacity has increased five-fold in the past decade, current market rules fail to fairly promote the use of renewables.

Current Market Status – Two-thirds of U.S. electricity passes through centralized wholesale electric markets. The rules and practices of these markets determine how the grid operates, to which inputs financing and interconnection resources are allocated, relative prices, and more. With such substantial market influence, these rules determine the relative financial incentives of different power inputs, as well as the overall responsiveness, reliability and affordability of electricity in that market.

Anti-Renewable Bias – The report concludes that existing market structures are biased in favor of incumbent power sources. Although wind and solar power are less expensive and far more responsive than other sources, rules governing grid operators limit their deployment.  Current market rules favor inputs generated by large utilities from fossil-fired, nuclear and hydro sources. Today, renewables make a meaningful contribution to overall generation and independent producers and non-utility purchasers are more common. Market rules, on the other hand, have not adapted to reflect changes in electric fuel costs, technology capabilities, market structure and customer preferences.

Suggested Reforms – The report further suggests that market reforms are needed to ensure that electricity in the U.S. is reliable and affordable. Given the benefits and attributes of renewable energy, these reforms would also “accommodate an anticipated supply mix with high levels of renewable generation and integrate all of the generation, storage and demand-side resources that contribute to reliable power system operation.”

The Wind Solar Alliance report recommends the following changes in market rules:

  • Attract flexible resources including demand response and storage through open participation and efficient market pricing;
  • Reduce inappropriate compensation and commitment of inflexible units;
  • Allow renewable resources to participate in all reliability services markets; and
  • Respect resource choices by states without mitigation

The recommended reforms encourage broad, flexible and fair markets. In addition, markets would facilitate customer choice.  Windmill Capital Management supports the goals and recommendations made by the Wind Solar Alliance.  Distribution markets, like government regulations and tax rules, have skewed energy economics in favor of incumbent inputs and participants.  We encourage changes that promote greater reliability, lower costs, expand customer choice and reduce the environmental impact of our electricity.