DOE Staff Report on Electricity Markets and Reliability Travis Fisher Senior Advisor, Office of Electricity Delivery & Energy Reliability November 8, 2017 Presentation to NERC Member Representatives Committee
Secretary Perry requested a grid study in April 2017 The memo asked staff to examine: • The evolution of wholesale electricity markets • Compensation for resilience in wholesale energy and capacity markets • Premature baseload power plant retirements Office of Energy Policy & 2 Systems Analysis
Process and report framework DOE Leadership DOE FERC and National relevant Labs Staff agencies Stakeholder Input Office of Energy Policy & 3 Systems Analysis
Study scope: 2002-2017 EIA data from this period captures several important trends: Merchant generation competing in centrally-organized markets • beginning in the mid-2000s The shale revolution and a significant increase in natural gas • supply The drop in electricity demand in 2008 following the recession and • subsequent flat demand growth Higher variable renewable energy (VRE) penetration beginning to • impact grid operations in certain areas Office of Energy Policy & 4 Systems Analysis
Key definitions • Baseload power plants : defined by their operation − High, sustained output levels − High capacity factors − Limited cycling or ramping • Premature retirement : subjective term Office of Energy Policy & 5 Systems Analysis
Key findings • A combination of market and policy forces has accelerated the closure of a significant number of traditional baseload power plants: Power Plant • Low natural gas prices Retirements • Low electricity demand growth • Environmental regulations • Increased VRE penetration • Bulk power system reliability is adequate today, but long-term concerns about baseload retirements merit further study Resilience • Markets recognize and compensate reliability, but more work is and needed to better understand resilience across a variety of grid and market scenarios Reliability • Growing interdependence on natural gas still needs to be addressed Office of Energy Policy & 6 Systems Analysis
Power Plant Retirement Trends Office of Energy Policy & 7 Systems Analysis
Retirement tranches by size, ownership Retirement Tranche Retired 2002 to 2006 Capacity (MW) Retired 2007 to 2010 1 Retired 2011 to 2015 500 Ownership Retired 2016 to March 2017 1,000 Merchant 1,500 VIEU ≥ 2,000 • 2002-2006: restructuring: majority of retirements are smaller, older merchant plants • 2007-2010: economic recession, shale gas, Mass v. EPA , strong utility-scale wind growth • 2011-2015: sustained low electricity demand and NG prices, MATS deadline, CPP finalized • 2016 onward: ??? Office of Energy Policy & 8 Systems Analysis
Retirements and additions by region Overall, retirements since 2002 have been no greater than 20% of the 2002 installed base (except CAISO) Office of Energy Policy & 9 Systems Analysis
Retirements by fuel type Coal, total retirements peaked in 2015 - MATS deadline - Clean Power Plan finalization Office of Energy Policy & 10 Systems Analysis
Retirements: Coal • Net retirement of 36,000 MW or 12% of 2002 coal fleet • Coal plants that retired recently did not operate as baseload Retired plants were smaller, older, had higher heat rates, and o therefore were dispatched less often and ran at lower capacity factors Office of Energy Policy & 11 Systems Analysis
Retirements: Nuclear • Between 2002-2016, 4.6 GW or 4.7% of the total nuclear fleet announced retirement • BNEF estimates that 34 of the total 60 plants are operating in the red • Many plants closing well before their operating licenses expire Office of Energy Policy & 12 Systems Analysis
Retirement driver: Natural gas supply Conventional and Shale Natural Gas Production, 2007–2016 Shale gas development has significantly expanded availability and lowered costs And natural gas plants have had increasingly more favorable heat rates than coal and nuclear Office of Energy Policy & 13 Systems Analysis
Effect of natural gas price on dispatch Simulated ERCOT dispatch curves Office of Energy Policy & 14 Systems Analysis
Reliability and Resilience Office of Energy Policy & 15 Systems Analysis
Reliability: NERC’s take (thank you) NERC CEO Gerry Cauley to DOE : ‐ As conventional resources prematurely retire, sufficient amounts of essential reliability services , such as frequency and voltage support, ramping capability, etc., must be replaced based on the configuration and needs of the system ‐ Resource flexibility is needed to supplement and offset the variable characteristics of solar and wind generation ‐ Higher reliance on natural gas exposes electric generation to fuel supply and delivery vulnerabilities, particularly during extreme weather conditions. Maintaining fuel diversity and security provides best assurance for resilience. Premature retirements of fuel secure baseload generating stations reduces resilience to fuel supply disruptions Office of Energy Policy & 16 Systems Analysis
Reliability: NERC’s take (thank you) NERC: reliability is adequate, but more study is needed Resource adequacy is good – most reserve margins are above target o Emerging emphasis on capacity value of VRE (Moura, Abdel-Karim) o Need more analysis on changing needs for ERS in a future with increasing VRE levels and decreasing rotating mass-based inertia New focus on integrating non-synchronous generation and ramping o capability Office of Energy Policy & 17 Systems Analysis
Reliability: Changing “net load” shapes • Many regions are integrating growing levels of VRE • Need more analysis on changing needs for ERS (ramping, net load following) Office of Energy Policy & 18 Systems Analysis
Resilience: Growing natural gas interdependence • NERC letter (May 9, 2017): Growing reliance on natural gas continues to raise reliability concerns regarding the ability of both gas and electric infrastructures to maintain the BPS reliability at acceptable levels • Highly anticipated report later this month Office of Energy Policy & 19 Systems Analysis
Resilience: Withstanding and recovering from extreme weather events Polar Vortex (Jan 2014) • Fuel-gelling in natural gas generators in the Northeast • Frozen gas fields and compressors in Texas • Frozen conveyer belts and coal piles Superstorm Sandy (Oct 2012) • Three nuclear reactors shut down • Two key natural gas compressor stations downed in northern New Jersey Hurricanes Harvey, Irma, Maria (2017) • Millions of customer outages • Puerto Rico still reeling – only 42% of peak load recovered as of Nov 6 Office of Energy Policy & 20 Systems Analysis
Areas for further research Market Structure Reliability and Cost and Regulatory and Pricing Resilience Affordability Develop policy Estimate system- Explore potential Study metrics and tools wide costs of to utilize existing mechanisms to for evaluating different authorities to enable equitable, system-wide generation mixes ensure system value- based provision of these and sensitivities reliability and remuneration for attributes to fuel price resilience desired grid fluctuations attributes Evaluate ongoing Examine ways to Update analysis Explore costs and capacity market improve power of subsidies and benefits of states reforms generator fuel support for applying cost-of- delivery data electricity service regulation collection production to at-risk plants Office of Energy Policy & 21 Systems Analysis
Staff Report on Electricity Markets and Reliability Read the report here. Provide input here. Office of Electricity Delivery and Energy Reliability Office of Energy Policy and Systems Analysis Office of Energy Policy & 22 Systems Analysis
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