Utility Dive (Opinion): Reforming Capacity Markets to Meet Clean Energy Goals and Support the Grid of the Future

Utility Dive published a contributed article by Jeff Dennis, managing director and general counsel for AEE on reforming capacity markets. Read excerpts below and the full article here.

This week, the Federal Energy Regulatory Commission (FERC) kicks off a series of technical conferences on "Modernizing Electricity Market Design" with an examination of the role of centralized capacity markets in meeting resource adequacy and reliability needs in a rapidly changing electricity sector. This national conversation comes as the future of the PJM Interconnection (PJM), ISO New England (ISO-NE), and New York Independent System Operator (NYISO) capacity markets are also the subject of investigations by state regulators as well as internal stakeholder debate…

When today's capacity market frameworks were developed nearly 20 years ago, prevailing state policies and customer preferences, as well as the economics of the generation fleet, were much different. States were not actively exercising their authority to determine the mix of generation resources used to serve customers, and had only recently ordered utilities to divest their ownership of generation, shifting to reliance on regional competitive wholesale markets to meet their needs. Customers were, by and large, not actively seeking to procure specific types of energy to meet their needs, and advanced energy technologies to help them do that were not as prevalent.

Today, the states comprising PJM, ISO-NE and NYISO are making more active choices about the generation resources that serve their citizens. Together, these states have made major policy commitments to using carbon-free generation and retiring emitting conventional technologies. In addition, advanced energy technologies like solar, wind and energy storage are rapidly becoming more economical than continuing to operate many conventional technologies…

In preparation for these conversations on the future of capacity markets and resource adequacy, advanced energy companies have articulated five core principles that should guide comprehensive reforms:

1. Support the ability of states and customers to meet their clean energy targets while ensuring system reliability. 
2. Preserve regional competition through an open, transparent and fair market structure that allows clean resources to provide capacity and other reliability attributes.
3. Ensure that the resource adequacy value of clean energy resources is captured and compensated and reverse the increasing trend of divorcing clean energy procurement from capacity/resource adequacy procurement (i.e., seek to harmonize the two).
4. Attract and support clean resources that will meet the differentiated resource adequacy, reliability and flexibility needs of a high renewables and advanced energy system (including non-energy intensive resources), while facilitating the orderly retirement of high-emitting and inflexible resources.
5. Ensure that the market is transparent, durable, transactable, well-understood, and provides actionable price signals.

Adhering to these principles would address the core problem that led us here — the failure of the existing constructs to recognize the reality that state policies, consumer demands and cost trends are all driving the electric power system toward clean energy resources — while instilling confidence that the evolving reliability needs of a changing grid will be met.

Read the full story here.