The last thing we need is an energy policy that accelerates the growth of intermittent power without reshaping markets to ensure reliability. Yet, that is what we have, not because it’s good for the country but because of an obsessive focus on domestic emissions-reduction targets.
Although the notion of a renewable energy future has obvious appeal, the challenges of integrating more wind and solar power are becoming glaringly obvious. Recent events show how serious the situation is. Consider California’s rolling blackouts last summer and the grid failures in Texas in February. Despite all of the excuse-making of renewable energy advocates, these crises, when renewable capacity was unable to contribute when it was needed most, were in large part the consequence of “green outs.”
While every source of power in Texas faced challenges, Texas’s wind capacity, the nation’s largest, failed when demand spiked. The accelerating addition of wind and solar power, driven by tens of billions of dollars in government subsidies, which now dominates capacity additions across the country, is creating a host of challenges and inefficiencies. Every gigawatt of new wind and solar capacity must be backed up by dispatchable generation to cover the gaps when variable power can’t operate. But in many electricity markets across the country, there’s no mechanism to compensate this backup generation properly. Instead, the coal and natural gas plants that underpin reliability are forced to run less and are losing revenue to subsidized wind and solar power. That’s certainly been the case in Texas.
Electricity markets are not producing price signals, and aren’t armed with the right mechanisms, to support the continued operation of existing dispatchable power capacity sufficiently. The hardest hit is coal. More than 100 gigawatts of coal generation has been retired in the last decade, and more coal plants are scheduled to close in the near future. Nearly brand new gas plants in Texas and California are closing as well, unable to make the economics work even though their dispatchable capacity is essential to keeping the lights on when the weather doesn’t cooperate.
Renewable energy proponents see battery storage and a massive expansion of high-voltage transmission lines as a cure-all to the intermittency challenge, but these solutions are anything but. Battery storage is in its infancy and is best suited to provide just a few hours of cushion to a grid, not days of backup. And building new transmission infrastructure is a regulatory and permitting nightmare. Building it at the speed and scale renewable advocates propose is all but impossible. For those who care about grid reliability, the situation is growing increasingly bleak. We’re losing essential capacity far faster than we are deploying solutions to ensure grids across the country supply generation when it’s needed the most.
Instead of pushing false promises about technologies and infrastructure that don’t exist, regulators and policymakers should insist on reforming electricity markets to provide reliability payments to dispatchable sources of power that can guarantee their availability when renewable power can’t. This would include existing coal capacity with months of fuel on-site and natural gas capacity with firm fuel contracts. These plants, capable of ramping up generation to meet demand when needed, provide an essential insurance policy that requires an insurance premium.
Federal Energy Regulatory Commissioner James Danly recently warned of market design failure, writing, “bulk power markets provide inadequate cost recovery, and thus investment, to ensure reliability.” He continued, “another increasingly serious problem is that intermittent resources largely are planned for, operated, and compensated as if they provide reliability benefits that they, in fact, are incapable of providing. … The bulk power markets should treat intermittent resources as they actually perform, not as we hope them to.” Danly is absolutely right.
Increased reliance on variable, weather-dependent power means we must reconfigure the nation’s electricity markets to ensure we have the dispatchable capacity we need as a backstop. Capacity markets that value reliability and pay resources to be available is an urgent need that can’t wait. Failure to act will mean the nation, not just Texas and California, faces escalating power blackouts, industrial shutdowns, higher bills, and job losses. That future, the one pushed by Green advocates, hardly constitutes “Building Back Better.”
It’s a disaster we can and should avoid.
Mark J. Perry is a professor of economics at the Flint campus of the University of Michigan and a scholar at the American Enterprise Institute.
