Gas has been touted for years as a cheap fuel and a cheap source of electricity. Maybe not so much in today’s world, but historically it has been. But not all gas-fired power plants are the same, and not all gas-fired power plants are as cheap to operate as our proponents want to believe.
A recent analysis by UCS examined how gas-fired power plants operated in the regional wholesale electricity markets in the Midwest in 2019. Each week in 2019, it looked at when electricity providers operated gas-fired power plants in the regional MISO and CAP markets (covering 20 countries after throughout the central United States). It estimates how often electricity providers lose money on their gas-fired power plants on a weekly basis, creating losses that are often passed on to captured taxpayers through electricity tariffs – customers of vertically integrated investor-owned companies, electricity cooperatives and utilities.
During 2019, electricity providers at MISO and SPP lost $ 117 million to taxpayers for wasteful gas operations. Steam turbines (which are sometimes former coal-fired power plants that have been converted to gas) and combustion turbines (which are generally used to meet peak demand) were responsible for most of these losses. Based on how regional markets are designed, this should not happen, especially during (2019) with low gas prices, which would make it easier for electricity providers to produce cheap energy and avoid losses. Unfortunately, there are ways for electricity providers to operate power plants uneconomically, and in the Midwest, it is most often customers who have losses on the hook.
What energy providers should do in these markets
Regional electricity markets (ISO / RTO) are designed to reduce costs for electricity providers and customers. In these markets, electricity providers tell market operators how much electricity their power plants can produce and how much it costs to generate. Market operators then select the lowest cost resources they will generate until network demand is met. Power plants that run receive market revenues to cover production costs (if revenues) electricity providers receive a profit that can be returned to taxpayers, shareholders or used to cover other long-term costs in the plant). This process takes place every hour of the year and helps to ensure that the lowest cost resources are used to meet demand, which benefits both electricity providers and customers by minimizing electricity generation costs.
What will actually happen
Unfortunately, there are plenty of opportunities (and sometimes motivations) for energy providers to cross the line and manipulate the system. While market operators dictate when power plants are in operation (so only the cheapest resources are used), energy providers have the possibility to operate power plants when they choose, no matter what the market operator dictates. The terminology for this behavior varies by market, but this phenomenon is generally referred to as self-planning and self-commitment and can lead to production beyond merit (in which more expensive power plants operate instead of cheaper available resources). These markings should be used sparingly, for example when a race needs to be tested, when a race has a minimum run time before it can shut down, or when a race with a long start-up time is needed. on the road for reliability.
However, such labels can be misused, making power plants uneconomical (due to losses), and much research has shown that this is the case with coal-fired power plants. One of the reasons why energy providers can operate uneconomically is to prove to regulators that their power plants are still useful and to continue to be reimbursed for the costs of the plant. Another reason is the performance of the performance contract (whether this performance contract is in the best interests of the rate payers is a different story).
Such designations may also suit inflexible power plants. For example, automatic planning allows a power plant that takes up to 12 hours or more to start up (like most, including gas stations) to jump to the beginning of the line and operate during ramping. This sometimes happens for reliability reasons, but not exclusively. However, this often means that cheaper (and often cleaner) resources that would benefit customers are idle or limited and lose market revenue. Or if this inflexible gas-fired power plant finally starts up and the market is no longer favorable, but the plant owner does not want to ride it all the way down, he can partially reduce it to be ready for the future, creating customer losses by still in operation when market revenues do not support it.
And some energy providers simply do not take all operating costs into account when submitting their operating costs (through their market offer). If an electricity provider does not properly account for its costs, its resources may be called upon to operate in the market when the actual operating costs are higher than the market revenues it earns.
That’s a lot – but the point is that electricity providers have a lot of opportunities to malfunction their power plants in regional markets, even at a time when cheaper resources could be used instead. The answers to why this happens may vary, but whatever the rhyme or reason, when it happens and losses occur (especially in the Midwest), they are captured taxpayers who pay for it from their accounts.
What we found and what to do with it
In 2019, the electricity providers in MISO and SPP did not operate gas power plants consistently economically. Steam turbines and gas turbines were often operated at a loss for weeks, and customers paid for it. During the year, during weeks when operating costs were higher than revenues earned in the market (which represents uneconomical operation), electricity providers generated excessive costs of $ 117 million, most of which were passed on to customers through their local energy companies. electricity rates. The distribution of these losses can be seen in the attached figure and table.
We have some recommendations for you to stop this phenomenon, so customers actually pay for the lowest available energy:
- Regulators can do more to monitor the operation of gas stations. Just because a race isn’t running doesn’t mean it’s running economically. Carrying out hourly and weekly analyzes such as this, with data that is not available to the public, can ensure that electricity providers operate their power plants in the best interests of taxpayers. Requiring energy providers to justify their operations when they appear to be uneconomical and not recognizing the costs associated with uneconomical operations is essential to protect taxpayers and ensure that they do not have unnecessarily high bills.
- Market operators can strengthen the monitoring of their own planning and commitment and report on how often this happens in their markets, in a higher resolution. SPP reports on self-planning and self-commitment aggregated across the board, and MISO estimates monthly losses from uneconomical self-planning, but reports no reports at hourly or even weekly level or by generator or owner. This would help regulators to enforce prudent operational decisions, provide customers with transparency in how their energy providers operate power plants, and lead to a more efficient regional system.
- Market operators and policy makers can do more to increase network flexibility and ensure that economic resources are available in the future to meet the needs of the network. The addition of additional economic resources would theoretically create additional supplies for the network, which would reduce the frequency of uneconomical gas operations. Both RTOs have large outstanding resources waiting to connect to the network. Almost all of these sources are clean energy sources that are cheaper and cleaner than gas. But many of these projects waited months to years to connect to the network. Market operators and policy makers can find ways to reduce the barriers that cheap clean energy sources face when connecting to the grid, while enhancing transmission so that clean energy is available. This will undoubtedly reduce the need for expensive gas to operate in the future and create savings for taxpayers instead of the uneconomic costs that taxpayers pay now.
In 2019, a year when gas prices were at a record low, we saw evidence that gas plants were not operated in the best interests of taxpayers. And current projections suggest that gas prices will not fall in the foreseeable future, which puts even more pressure on the gas economy. Policy makers, regulators and network operators need to do more to monitor wasteful gas production and reduce the barriers that clean energy sources (which could replace wasteful fossil resources) face in order to meet the needs of the network. This would protect taxpayers and ensure that taxpayers do not pay more in their accounts than they should.
Ashtin Massie, energy analyst.
Originally published by the Union of Concerned Scientists, The Equation.
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