This is a report extract from a recent report by American Council on Renewable Energy and Grid Strategies LLC

The controversial topic of resource adequacy (RA) is undergoing fundamental reassessment to function properly with the future resource mix. From a legal standpoint, while FERC’s authority over resource adequacy in the ISO/RTO setting has been construed expansively, the Commission has declined to mandate capacity markets in circumstances where reliability and economic problems have not been demonstrated. Outside ISOs/RTOs, FERC’s authority is much more limited.

Where capacity markets exist, if environmental attributes are co-optimized with capacity in a single market, that may confer authority over related environmental issues that could be used by a future set of FERC Commissioners to interfere with state policies as has been done with previous market rules such as the Minimum Offer Price Rule (MOPR). Technical considerations include: the need to modify both system-wide and resource specific RA metrics, evaluation of RA in all hours not just annual peak, and interactions between resources that in some cases such as solar and storage increase their capacity value when used in the
same portfolio.

Economic policy considerations include the “public good” characteristics that underlie the original need for RA requirements, but which may be less prominent with new monitoring and control technologies; the need to precisely define products based on engineering need; and efficiency improvements where there are long-term contracting arrangements for electricity products.

The following reforms are recommended:

Provide non-discriminatory capacity value for clean energy and all resources

Correlated outage risk is now being widely applied to renewable energy sources but not to fossil resources, as described in the Stenclik-Goggin memorandum. And yet there have been many experiences with cold weather, loss of a pipeline, widespread heat, and drought that have affected the performance of fleets of coal, gas, and nuclear energy plants. Current approaches in both IRP and capacity markets tend to assume that outage risks for conventional sources are all independent. ELCC was originally developed for fossil resources and would apply equally well to fossil units.

Portfolio effects should be incorporated. Solar and storage capacity values are higher when the other is present on the system and that should be reflected in the value they are accredited. Wind and hydro similarly have positive interactions. Northeast RTOs have testified to their concerns about winter peak conditions and yet capacity models are all based on summer peak conditions. If winter conditions pose more resource adequacy risk, then the higher capacity value wind energy provides in winter months should be
reflected in their capacity value.

Create buyers with accountability

An important part of resource adequacy is putting someone in charge of procuring the needed resources. ISOs and RTOs were not originally designed to procure electricity products other than short-term ancillary services.38 Traditionally, wholesale buyers have been utility LSEs. With the advent of retail competition, competitive retailers were put in the role of procuring power for the load they serve. However, most of the states with retail choice are in areas with RTOs, and the states have tended to rely on RTO capacity markets and have relieved competitive retailers of the duty to procure long-term power.39 It is important for resource adequacy purposes to make sure some entity is accountable for procuring the needed resources, whether it is the utility LSEs, government entities, competitive retailers, RTOs, or some other entity.

Whoever the buyer is should be encouraged to provide hedging to reduce the ultimate cost to consumers. Generation plant financing costs are lower when there are long-term contracts, allowing the investor to lock in sales prior to committing all of the capital needed.

Avoid FERC jurisdiction over environmental attributes

One must look no further than the recent experience with MOPR to see the damage and disruption that can occur with a single swing vote at FERC. If a recent FERC majority can essentially undo state clean energy policies, it takes little imagination to see what could be done by a future Commission. MOPR votes happened to fall along party lines. While that might be different in the future, the US Senate, which confirms Commissioners, has the narrowest possible majority presently and that can change in any two-year election cycle.

Increase regionalization

Great efficiencies, reliability improvements, and clean energy integration possibilities come with regional power systems, compared to balkanized single utility systems. What the Northwest is doing to ensure resource adequacy for the region and what the Western Energy Imbalance Market is doing improves all of these objectives. The Southeast could do the same. Regional resource adequacy enables resource diversity, load diversity, and a larger pool of resources to meet load.

Increase the granularity of resource adequacy and reliability products

As described in the Stenclik-Goggin memorandum, raw “capacity” is becoming less meaningful. The reliability needs are different in summer and winter, at different times of day, and over different time scales. Short-term needs tend to require fast response and little advance notice, while longer term needs tend to require low capital cost while allowing for slower response and more notice. There is likely not one “capacity” product but rather more granular products. With more specific products, each resource can provide whichever product it is best suited to provide. The first step is to create seasonal capacity markets, as NYISO has and MISO is working on. This was a focus in PJM before the MOPR issue consumed PJM and its stakeholders. More advanced proposals are being considered in California given their high renewable energy penetration.

Shift relative payments from capacity to the energy and ancillary services markets

The best laid plans will not cover all reliability needs because every situation is somewhat different. To maximize reliability, short-term energy and ancillary services prices must reflect their value at times of scarcity. Scarcity pricing and operating reserves demand curves will provide the right signals to encourage performance, power imports, demand reduction, and other actions needed to keep systems in load-generation balance in any kind of situation. Wind, solar, and battery resources are fast-responding and can benefit from selling power at these times. When systems rely more on accurate spot pricing relative to capacity markets, there is less vulnerability to subjective and political determinations of capacity value and capacity needs.

Utilize competitive procurement for new generation

For low-cost decarbonization, it is important to maximize competition in the generation sector. Even in states where utilities serve all load, own and operate transmission and distribution, and own generation, states can decide that all future generation can be competitively procured. There is a set of best practice procurement methods that states can be encouraged to follow

Support regional stress testing and evolving resource adequacy assessment methodologies

The clean energy transition will only sustain if reliability can be preserved. Threats to reliability in recent years are coming from events for which plans were not made—polar vortices, regionwide heat waves, hurricanes, and wildfires. However, these events can be planned for going forward. Each region should conduct “stress testing” to uncover vulnerabilities and identify protections. ISO-New England and PJM performed energy security studies that went beyond normal resource adequacy assessments. The Department of Energy and states could support this work. RTOs and utilities should perform assessments of imaginable, realistic threats. These analyses need to incorporate vulnerabilities in the fuel supply system. Resource adequacy regimes should be tied to the actual threats that may impact a region. Better severe weather forecasts from the National Oceanic and Atmospheric Administration will likely be needed.

Develop new metrics of system reliability

As described in the Stenclik-Goggin memorandum, the traditional metrics of reliability do not apply well to the future resource mix. Expected Unserved Energy will likely take on greater prominence.

The complete report can be accessed here