Restore Competition to Electricity Markets
September 11, 2019 - Are renewable sources of power ready to stand on their own two feet? Ask wind and solar boosters and the answer would seemingly be yes. The story we’re being told is that after decades of government support, wind and solar projects are now cost-competitive with traditional sources of power. Except when they’re not. Curiously, these same boosters who claim wind and solar power have arrived, want nothing to do with pulling back the subsidies and mandates that give renewables a massive leg up in supposedly competitive electricity markets.
It would seem the renewable lobby would like things both ways. They want wind and solar to be recognized as cost-competitive resources that are ready to shoulder a far bigger load of the nation’s energy demand, but they adamantly oppose any efforts to touch the mandates and subsidies that have been their engine of growth.
And what an engine it has been. While just a snapshot of that largesse, according to the Joint Committee on Taxation, wind and solar power will have received $36.5 billion in federal tax credits over the five-year period 2016-2020. It’s an extraordinary sum, yet it doesn’t even begin to account for the support provided to wind and solar at the state level.
Despite the much-ballyhooed maturation of renewable technology, these subsidies and mandates aren’t on their way out. Rather, they’re poised to grow. Instead of phasing out this largesse, and perhaps using that government support to accelerate innovation of nascent energy technologies, we appear to be doubling down. The result is havoc in electricity markets and a growing threat to reliability. These out-of-market payments have turned competitive markets into anything but.
Consequently, essential coal plants are being forced into early retirement not because they can’t provide cost-competitive electricity but rather because they are competing in a contest rigged so that they can’t win.
While electricity markets are supposed to foster reasonable wholesale electricity rates that ensure affordable and reliable power, baseload power plants – the foundation for that affordable, reliable power – are being replaced with sources that undermine it. It’s an alarming situation. The reliability and resiliency of the grid is being held together by power plants that are being pushed into early retirement because of market manipulation. It’s past time to address this glaring problem.
A First Step?
Excluding sources of power receiving distortive subsidies from capacity markets is a logical and reasonable step in addressing this burgeoning crisis. If states are bent on upending competitive markets, it’s up to federal regulators to address market manipulation and level the playing field.
The current path forward is unsustainable. While it’s proving a boon to the renewable industry and utilities, it’s eroding reliability and shifting a growing burden onto consumers. Ratepayers are both footing the bill to fund these subsidies and paying inflated electricity prices driven by renewable mandates.
As a recent study from the University of Chicago discovered, in the 29 states hosting renewable portfolio standards, consumers paid $125.2 billion more for electricity in the seven years after the passage of these policies than they otherwise would have. The lead author of the study, a former Obama administration economic advisor, observed, “The headline result here and the most important result in the whole exercise: signing up for these policies increases electricity prices, full stop. Second point: what do you get in exchange for that?”
What we seem to be getting is erosion of the reliability of the grid and a springboard for far higher electricity prices – prices Americans don’t want and can’t afford. While decisive action is needed to reshape markets to better value the resiliency provided to the grid from fuel-secure sources of power, addressing the influence of out-of-market payments could be an important first step in restoring true market competition. It’s an action well within the purview of regulators. There’s not a moment to lose.