Parsing The Recent FERC Ruling On Renewable Energy -- April 18, 2020

See this post.

At the time of the original post, I did not have time to study this. At the time, I did not understand it.

So, time to go through it.

 As I understand it, the story began with the "original" FERC hearing earlier this week.

"Someone" requested a re-hearing, and according to the headline (above), FERC denied a rehearing.

So, let's go back to the original hearing.

From The National Law Review, February 20, 2020 (I have no idea how credible the source is). The article begins:

On December 19, 2019, the Federal Energy Regulatory Commission (FERC) gob smacked the renewables industry by issuing an order that makes it nearly impossible for most new renewable energy projects in the PJM system to sell capacity into the market. 

Approximately 55 individual parties have moved for FERC to reconsider the order including ten state public utility commissions, no less than five of which have indicated that they may consider pressuring their utilities to withdraw from PJM if relief is not granted.  

And, of course, as noted above, FERC denied a re-hearing.

Next paragraph from the linked article:

• East Coast affected
• West Coast (California) may or may not be affected

East Coast:

• PJM is the intended point of connection for approximately 8800 MW of offshore wind from North Carolina to Maine
• 55 individual parties negatively affected
• ruling could prevent these offshore projects from going forward

RTO: regional transmission organization

JPM is an RTO.

Third paragraph in the article:

• RTOs price capacity through reverse auctions.

This sounds confusing. A regular auction: highest bid wins. A "reverse auction": lowest bid wins. Sort of.

The "bids" or "offers" of the various suppliers of electricity (for example, the offshore wind farms) are stacked and racked based on price.

A line is drawn at the level where the capacity bids below the line equals the capacity required by the RTO.

Those entities below the line are eliminated from contracts for that auction period. Only the entities (e.g., the offshore wind farms) above the line get contracts to supply energy to the RTO.

This is one thing that confuses me -- but I think I understand it: the highest bid in the resulting stack sets the price for all lower bids. Bidders whose offers are higher than the highest bid receive nothing for their capacity.

If I'm reading that correctly, the highest bid is the bid that becomes the bid for all those entities above the line. Understanding it or no, it's not important for this discussion.

Next, fourth paragraph from the linked article. The reverse auction incentivizes a bit of hanky-panky. It behooves holders of high-cost generation to offer prices below the actual costs. That would increase their chances of being "above the line."

"After all, being paid something for capacity is better than being paid nothing" -- which would happen if their bid put them "below the line."

FERC has long required that initial capacity bids be tied to actual fixed costs of the resource (remember: hydroelectricity is really, really cheap; natural gas is really cheap; off shore wind is really, really expensive). This minimum pricing is called the minimum offer pricing rule or MOPR.

But get this: historically the MOPR has NOT applied to renewable energy projects. Say what? Historically? Offshore wind has not been around all that long. Has this all been done under Obama-like administrations?

But I move on.

Fifth paragraph: historically the MOPR has not applied to renewable energy projects. But recent orders have changed that.

In the PJM order, FERC cited the dramatic growth of state-subsidized renewable resources on the PJM system, including uneconomic nuclear and coal generation as well as renewables and offshore wind.

In fact, OSW is leading the way in the growth of renewables in PJM. The 8800 MW of OSW projects under development there compares to the approximately 600 MW of solar and wind resources that cleared the 2021 capacity auction.  

Further paragraphs, but I think I now get it:

In response to this wave of new state sponsored renewable capacity, FERC terminated the exemption for renewables from MOPR pricing and specifically applied MOPR pricing to new renewable energy projects that receive direct or indirect support from state and local governments.

Support has been defined broadly to include all state and local economic benefits for renewable projects, including renewable portfolio standards, mandatory purchase contracts, offshore wind renewable energy credits (ORECS) and even private renewable energy credits.  

As a practical matter, the PJM ruling means that capacity from offshore wind projects cannot clear the PJM capacity market: Absent subsidies, OSW costs are simply too high when compared with the costs of gas-fired peaking turbines against which they will compete. 

Then there is much more -- "a grandfather clause, as it were." 

Some argue that FERC is over-stepping its authority. States are allowed to choose from whom they want to purchase their electricity. If the electorate wants to pay higher prices for electricity to save the world, they should have that right.

So, it sounds as if the states want to pursue this, they can sue FERC -- which would eventually be a US Supreme Court case, I suppose. 

Anyway, to the extent it's clear, I think I understand it. 

Bottom line:

• FERC ruled that all electricity generators must play by the same rules when bidding in RTO auctions.
• The FERC may be overstepping its authority -- federal government vs states rights.

Now to post and go back to a comment from a reader who follows this and understands it much more closely than I do. Now I understand what the reader was saying, I agree:

Although there are several components to this FERC/PJM  capacity market auction situation, it might be condensed by describing it as a  state-subsidized subset of electricity generators (specifically the wind boys), having an unfair advantage in the pricing marketplace when competing against the natgas/coal power generators.

It is crucial to future wind projects as they simply CANNOT compete economically with the natgas generators and this directly conflicts with the ongoing "transition" narrative of the starry eyed state government players who continue to mandate electricity generation from renewables.

(This is primarily by fiat by ordering heavily regulated utilities to purchase set - and increasing - amounts of electricity from renewables).

To describe all this chicanery as rank political maneuvering would be stating the obvious, but - since we only have a couple of years left to Save The Planet, over the cliff we must merrily go.

One interesting bit of fallout ... as the political pressure continues to ramp up in favor of the renewables, states such as New Jersey and Massachusetts (part of the ISO, but similar conditions exist there), are chest thumping that they will pull out of these regional, federally regulated electricity consortiums and "go their own way"!!!

That stance is SO falling down funny and it reveals such a staggering degree of ignorance that - hopefully - more rational input will prevail in these matters.

Bottom bottom line, with Trump calling the shots out to 2024, the Age Of Renewables may be starting to recede from the American stage. 

Good riddance.

Another reader wrote:

We both are continually amazed at how New England consistently does everything wrong about energy ... especially New York State.

As you reported in your blog this "review" wasn't the first action. It started in 2012 and it's all about pricing natural gas ... and if a New England natural gas power plant is "necessary", hence Sierra club trying to do everything it can to make natural gas more expensive paving the way for wind.

I had to find an issue that doesn't involve coronairus ... and the attendant civil liberty violations (my convoluted anger management technique). If I find anything really profound I'll pass it along.

Good, bad, or indifferent, I have a much better understanding of what's going on, which makes for a wonderful Saturday evening as I watch Casablanca for the 157th time.