The following article describes the current grid energy auction system and how the system supports and masks unreliable wind and solar energy. It shows how reliability is not priced into the system and instead transfers reliability costs to nuclear, coal and natural gas plants. It also generates the question of where will the electricity come from when all the reliable power plants are priced out of existence and the wind is still.
From The Week That Was (SEPP) October 10, 2020
`Now, Dears states there is something to fear –how politicians and others who misunderstand the role of carbon dioxide and the greenhouse effect in climate change are damaging our energy future. In his new book, “The Looming Energy Crisis: Are Blackouts Inevitable?” Dears explains how politicians and bureaucrats, either knowingly or unknowingly, are changing the electric grid in ways destructive to the reliable supply of electric power. The blackouts experienced in California and South Australia are an example of what is coming. A secondary title to the book could be: How Public Subsidies Are Increasing the Costs of Electricity to the Public.
After a review of the US electricity system, with parts under the control of Federal regulators and parts independent of them except for interstate transmission, Dears describes how regulators are altering the auction system to favor wind and solar power [the following will focus on wind]. These alterations are in addition to the mandates by some states that utilities must take wind power under the false notion it is “clean.”
The parts directly under control of the Federal Energy Regulatory Commission (FERC) are the areas under a regional transmission organization (RTO) or independent systems operator (ISO)to coordinate regional transmission of power –the Grid. States that are not in an ISO or RTO are directly controlled by their state utility regulators. Unfortunately, FERC has politically motivated commissioners who put their ideological beliefs above the obligation to deliver safe, reliable power at lowest possible cost to the public.
As exposed by Dears, there are several major weaknesses in the system: 1) daily auctions using a market clearing price and 2) no guarantee of future delivery. The daily auctions sound competitive, but one must realize that the major costs of wind, the capital costs, are subsidized by the Federal government, the public. As long as the wind is blowing and the weather is fine, there is little cost associated with wind delivering power. Relying on daily weather forecasts, industrial wind organizations can bid extremely low to deliver power for the next day.
The rub is that industrial wind will receive the highest price the system operator (ISO or RTO) determines necessary to clear the market, the market clearing price. That price is determined by the last bidder needed to provide the electricity needed for the following day, which is usually the highest price accepted by the system operator. Thus, that price can be far more than industrial wind needs to earn a reasonable profit. Some economists would label the difference as “surplus profits” or “unfair profits.”
If the forecast is no wind or too much wind for the next day, industrial wind will not bid and the consumer is out of luck. The ISO or RTO must obtain what electrical power may be available for the day whatever the cost. The net effect is that industrial wind is low bidding when weather is favorable, and driving out reliable sources of electricity, while making major, subsidized profits. Further, industrial wind is not required to provide needed backup or storage if the wind fails. Recently, similar problems arose in California with solar power, which cannot deliver when the sun is going down. Essentially, the auction market as now executed results in reliable producers priced out when weather if favorable for wind, and much needed reliable producers must bid much higher prices to keep operating when weather is unfavorable for wind. The public does not benefit from favorable weather and is punished from poor weather.’
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