Last Spring, our son had an unfortunate injury while playing for his Rugby team at Elon University in North Carolina. He dislocated his shoulder, which was painful enough, but then did not follow-up with the necessary physical therapy to strengthen the muscles and tendons in order to forestall surgery. This summer, while training for a license in skydiving the shoulder popped out painfully 10,000 feet above the ground. His risk tolerance suggests a possible future in commodity trading. For now, though, he is awaiting surgery to fully repair the shoulder followed by recovery time back home with us.
My son’s sudden need for surgery was on my mind as I listened to another urgent discussion on how the Pacific Northwest region is going to manage the transition to renewables while maintaining system reliability. The Pacific Northwest has historically had excess capacity. When your used to something, it’s easy to take it for granted – like youth and health. You don’t do the things that might be necessary to take care of yourself going forward – like establishing a market or a regional capacity obligation – because its hard and doesn’t really seem necessary. Now, that lack of foresight has the alarm bells ringing. With renewable mandates throughout much of the region coupled with retirements of legacy generation, that comfortable excess capacity is quickly becoming a luxury of the past. The mind is focused. But what to do?
Options and Challenges
Markets: Ideally, a robust network market could be established dispatch the existing and future resources mix as efficiently as possible. If you’ve read my blog posts in the past, you know that I believe the governance question will keep the CAISO from becoming a true regional market. If governance is too high a hurdle, I have asserted the EIM entities should move forward with their own market. But I’ve been told in no uncertain terms that can’t happen. The way forward, I’m informed by others more directly involved, is an incremental approach to grow the EIM into some day-ahead product. My doubts regarding how this will work without tripping market power concerns remain. While I wish for a Pac NW RTO, I’m told “no”. Next option…
Regional Capacity Mechanism: If we must wait for another 10 years for a full RTO in the region, can the utilities and other market participants to formulate a regional mechanism to procure capacity in the near term? Although I would naturally prefer a functioning energy market to provide the price signals for investment, I understand that a capacity mechanism is probably necessary now because of the rapid influx of renewables that have low to zero marginal costs. A capacity payment could help ensure sufficient revenue for the thermal units that will be needed when the sun doesn’t shine, and the wind doesn’t blow, and battery storage capabilities don’t cover the contingencies of multiple days of unfavorable weather. But what is the forum, and will it have teeth?
The California Problem: California is the big market and it is entering a period of being short planned resources. California does have a resource adequacy (RA) market but it is in the midst of review by the CPUC – FERC need not apply – with some input from CAISO. Whatever policy comes out of that review will certainly be uniquely Californian and thus unsuitable for the Pac NW or the rest of the West. A Pac NW regional capacity mechanism will need yield a product that can be bought and sold in the Golden State while meeting the needs of the regional actors. California won’t change to suit the region so the region will have to take California into consideration.
All hands needed…
I was a bit surprised recently when friend of mine asked innocently why there aren’t more independent generators in the Northwest. I responded that the region has always been dominated by hydropower, a circumstance of capital costs having been underwritten by the US taxpayer. Secondly, vast amount of hydro as compared to the load requirements meant a lack of a need for much new generation over the last few years. Finally, the resulting low-cost structure made the margins hard to finance for a combined-cycle plant unless there was some unique reliability need.
Now, a regional structure needed to attract anyone who can bring about dispatchable resources to balance the system when renewables can’t. Whatever we create to ensure procurement of capacity must work for all participants – public power, utilities, and independent generators alike. It’s going to have to be acceptable to state regulators. We’re going to have to decide what factors to give different kinds of resources like wind, solar, storage. I’d love to include demand response but that will have to wait for a market and agreements of state policy makers.
So, what group or organization will be the focal point for addressing this regional need? Can we avoid the Hamlet syndrome (“To be, or not to be, that is the question…”) that has plagued regional efforts – including market formation – in the past?
Come, let’s talk
Remember your history lesson about the Lewis & Clark expedition that explored, mapped and opened the Northwest? The wonderful book by Stephan Ambrose, Undaunted Courage paints a picture of the fortitude it took to begin the settlement of the region. I thought about this as I flew out of Seattle past Mount Rainier and then crossed the Columbia winding its way West. It’s going to take us out of our comfort zone to do what we need to do but we must hash this out.
WPTF is planning a Pacific Northwest Roundtable in November. The subject: How the prospective EIM and possible incremental changes work with a possible regional capacity mechanism. We’re not going to “solve it” at this meeting but perhaps we can contribute to the dialogue. Look for notices and an invitation soon.
It may take “undaunted courage” to do what’s necessary, but it won’t be as hard as jumping out of an airplane. At least, I don’t think so…