Electricity Restructuring and Climate Change

Have you ever wondered whether restructured (“deregulated”) electricity markets or regulated public utilities will do a better job at getting us on the road to a low-carbon economy?

You might have hoped that a new report from Navigant Consulting and spnsored by the Compete Coalition would help answer that question.  

Readers of the report know, going in, that it’s produced as an advocacy job, to shed the best light on proponents of restructuring who would like to advertise their model as “greener” than the alternative.  One would expect, the report, while slanted, to marshall the best and strongest sources and data for their persepctive.  After all, that’s precisely what the Compete Coalition was paying for.

The result, “Price Signals and Greenhouse Gas Reductions in the Electricity Sector,” is quite revealing — for what it doesn’t say.  

Firstly, consider the citations.  They mention only a single, recent statement from one environmental organization favoring re-structured markets as part of climate policy — not exactly a ringing endorsement.  Second, there are a very small number of academic or independent sources referenced in support of their contention.  And finally, there is only a single publication, from any RTO/ISO (each of who produce PLENTY of reports) that references climate policies.  The fact is that RTO/ISOs, like their godfather FERC, have had relatively little to say about reducing carbon emissions until very recently.

Perhaps if the debate remains at the abstract level of markets, deregulation and monopolies, combined with understandable confusion of electricity markets and carbon markets, the contention that “cap and trade” works better under deregulation can be sustained.  However, one would hope that, after the meltdown of California’s electricity markets, not to mention last year’s meltdown of deregulated financial markets, that the American public would appreciate that real-world outcomes have more to do with nitty-gritty details of who and how than with abstract sloganeering.

When we consider the actual data in the report, it’s extremely thin.  The main data set displays the performance of coal and nuclear generation under deregulation.  One of the arguments for that policy is that it encourages generators to operate plants, especially coal and nuclear, more efficiently.  And yes, their graphs (Figures 3 and 4) do show that, although in the case of both coal and nuclear the biggest efficiency gains happened earlier (in the 1990s mainly) and have flattened out recently.  This would suggest that further gains of this type in markets already restructured are likely to be limited.

Because they used plant-specific data, presumably it would have been possible to show that these efficiency gains also resulted in aggregate reductions of carbon-dioxide emissions in the respective RTO/ISOs.  Unfortunately, that data was not forthcoming.  One suspects that although coal generators became a bit more efficient, the actual functioning of the administered wholesale markets favored coal generation over other fuel sources, at least in some of the RTO/ISOs, resulting in an upward trend in emissions.  

Once again, the dog did not bark.  The report contains no information whatsoever about the actual performance of restructured markets with respect to carbon emissions.  It would be easy enough to divide the states into deregulated and not, presenting trends in electricity-related emissions for both groups, if it could be shown that deregulation, to date, would do a better job reducing carbon emissions.

The Compete Coalition report cites an NREL technical report: Facilitating Wind Development: The Importance of Electric Industry Structure.  Kirby and Milligan emphasize the point that integrating wind projects over a larger geographical area increases the capacity value of wind development (because the wind fluctuations become less correlated).  Restructured markets, in theory reveal this value and make wind more attractive to investors for that reason.  For the most part, they rely on the current distribution of wind capacity that is concentrated in RTO/ISO states.  It’s a leap however to say that this variation was caused by the changed market structure.  The sample, after all is dominated by California and Texas, which have had very aggressive state-level policies to promote wind.  

A report from the Carnegie Mellon Electricity Industry Center: Do RTOs Promote Renewables? A Study of State-Level Data over Time found no strong association between the growth of renewables and the shift towards restructured markets in many states.  This study, by Spees and Lave, is perhaps most useful to showing just how difficult it would be demonstrate a strong association.

In many states, renewable portfolio standards — state laws requiring utilities to source a fixed portion of their power from renewables — were included in  the original legislative deals that launched deregulation out of concern that restructured markets might favor excessively the use of fossil fuels.  (See the recent report on state RPS programs from the Clean Energy States Alliance.)  To the extent that RPS have contributed to the growth of renewables (a legitimate research question in itself), it hardly seems fair to give RTOs and ISOs the credit!

And everyone would agree (probably) that federal tax incentives dominate all other factors in driving annual construction of wind capacity.

Instead of cherry-picked data and speculation about the possible impacts of possible future policies, what’s needed is an actual assessment of how restructured markets have actually performed with respect to reigning in carbon emissions.  It’s not a new issue and many in the power industry started taking appropriate steps many years ago.  Others have suppressed discussion of the problem, hoping to prolong the profits of dirty power for as long as possible.We need to ask hard questions about the environmental performance of the RTO/ISOs and FERC itself and not be distracted by the green smokescreen being drawn across their carbon-promoting practices.  

And the same touogh questions should be asked of the power industry in the regulated states as well.

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One response to “Electricity Restructuring and Climate Change

  1. Pingback: Climate and Deregulation « Maryland Energy Report

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