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The Market for Electricity is Rigged

November 10, 2017

The preferential dispatch system used by many RTO/ISO grid operators favors wind and solar to the exclusion of critical baseload power from fossil fuel and nuclear power plants.

The preferential dispatch system used by many RTO/ISO grid operators favors wind and solar to the exclusion of critical baseload power from fossil fuel and nuclear power plants.

Preferential dispatching is destructive because it results in the closure of fossil fuel and nuclear power plants.

It could also be called discriminatory because it discriminates against baseload power.

The situation today is serious. It is calamitous because perfectly good nuclear power plants are being forced to close as the result of the preferential dispatch system.

A recent Hoover Institution Press publication Keeping the Lights On at America’s Nuclear Power Plants, framed the issue this way:

“The energy and reserves wholesale market structure itself represents a form of subsidy to renewable power generators with unreliable output.”
(Emphasis added.)

It also said:

“Low wholesale prices are good for consumers, but not if the market prices are lower than actual generation costs, which can occur if market participants are benefitting from out-of market revenue streams.”

[Emphasis added. Out-of-market, refers to production tax credits.]

Production tax credits have helped stimulate large investments in wind generation that has created an oversupply of electricity in many markets, which, in conjunction with preferential dispatching, has resulted in the displacement of traditional baseload power.

The Hoover publication pointed out, “Forty-nine of one hundred reactors now operate in deregulated states.” The other reactors are in regulated markets.

“Deregulated” markets use the lowest variable cost when selecting suppliers of electricity, where the lowest variable cost will virtually always be from wind or solar plants because they have no fuel costs. This results in wind and solar being selected over coal, natural gas or nuclear power plants whenever wind or solar generated electricity is available.

“Deregulated” markets have introduced a mechanism that virtually always selects wind and solar over coal, natural gas, or nuclear power.

Whether this was a deliberate effort to favor wind and solar to cut CO2 emissions to combat global warming is unknown, but the effect of preferential dispatching has been to close fossil fuel power plants, as well as nuclear plants.

The term “deregulated” markets is, for the most part,  synonymous with preferential dispatching.

The media has usually overlooked the effect of preferential dispatching when describing the threat to nuclear power plants. Instead, the media has pointed the finger at “low-cost natural gas.”

For example, here is a quotation from Turbomachinery Magazine:

“The carnage in competitive markets, where gas is the fuel to beat, has bloodied coal and nuclear heavy merchant providers.”

No mention of free fuel being the “fuel to beat.” No mention of preferential dispatching.

The market structure of preferential dispatching has become an issue not only in the United States, but also in Australia and Germany.

Here is a quotation from Network Death Spirals by Bryan Leyland, a New Zealand scientist:

“It seems to me that Australian power systems are heading toward a death spiral resulting from installing large amounts of expensive and unreliable wind and solar power.”

“A critical error in setting up the electricity market is that it does not reward generators that can guarantee to be available over peak demand periods over generators that cannot …. In a rational market generators that reliably provide electricity over peak demand periods should receive an additional payment for this essential service.”
(Emphasis added.)

The problem is not low-cost natural gas or greedy utilities.

The problem is “preferential dispatching” and it will destroy our electricity supply system if it isn’t eliminated. For additional information, See Controversial Fuel-Secure Rule  See also, Importance of Duck Curve

Preferential dispatching is an issue that must be resolved if we are to salvage our reliable and low-cost electric supply system from destruction.

Several suggestions have been made, including those by Bryan Leyland and Secretary Perry, for saving the grid system that has served Americans extremely well for over a century.

There are other solutions, such as return to the regulatory system used in the past, and still used by some states.

This article may be one of the first to identify the real threat to our grid.

No matter which solution is best, the “preferential dispatch” system must be eliminated.

[Originally Published at Power for USA]

Article Tags
Energy
Author
Donn Dears is the author of 'Clexit,' a former executive at General Electric, and a policy advisor to The Heartland Institute.
media@heartland.org

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