161. How Regulatory Burdens and Misguided Incentives Are Degrading Power System Reliability

It’s no secret that the U.S. electric power system has undergone a remarkable transition that continues today. Coal-fired generation, which was the leading source of power generation during the 20th century, often providing more than half of the country’s electricity supply, fell to about 16.2% of the mix in 2023. Meanwhile, the U.S. solar market installed 32.4 GWdc of electricity-generation capacity last year, a 51% increase from 2022, and the industry’s biggest year by far, exceeding the 30-GWdc threshold for the first time. Solar accounted for 53% of all new electricity-generating capacity added to the U.S. grid in 2023, far greater than natural gas and wind, which were second and third on the list, accounting for 18% and 13% of new additions, respectively. But, how is the shift in resources affecting power system reliability? Some experts say it’s not good. “We’ve got a lot of warning lights that appear to be flashing today,” Todd Snitchler, president and CEO of the Electric Power Supply Association (EPSA), said as a guest on The POWER Podcast. “I say that not just from our perspective, but from NERC [the North American Electric Reliability Corp.]—the reliability coordinator—or from FERC [the Federal Energy Regulatory Commission], who has also expressed concerns, and all of the grid operators around the country have raised concerns about the pace of the energy transition.” EPSA is the national trade association representing America’s competitive power suppliers. It believes strongly in the value of competition and the benefits competitive markets provide to power customers. “Our members have every incentive to be the least-cost, most-reliable option that’s available, because if you are that resource, you’re going to be the resource that’s selected to run,” said Snitchler. Yet, not all markets are providing a level playing field, according to Snitchler. “The challenge we’re seeing is that there are a number of resources that are either having regulatory burdens that are placed on them that make them less competitive in comparison to resources that are not facing the same challenges, or there are resources that are highly subsidized, and as a result of those subsidies, it creates an economic disadvantage to unsubsidized resources, and that puts economic pressure on units that would otherwise be able to run and would earn a sufficient amount of revenue to remain on the system,” he explained. “We’re also seeing a pretty significant acceleration in retirements off of the system of dispatchable resources,” Snitchler continued. “What does that mean? So, of course, it means the coal plants that have been on the system for decades, as a result of economics and environmental policies, are retiring and moving off of the system. You’re seeing some of the older gas units experience the same kind of financial and regulatory pressures, and that is forcing some of them off of the system. And we’re seeing a large penetration of new renewable resources come onto the system that, frankly, are good energy resources, but don’t have the same performance characteristics that the dispatchable resources have. “And so, we’re having to fill a gap, or as I call it, the delta between aspirational policy goals and operational realities of the system, because too much retirement of dispatchable resources without sufficient resources that can replicate or deliver the same types of services that those dispatchable resources can provide, creates reliability concerns,” said Snitchler.