Economic And Clean Energy Benefits Of Establishing A Southeast U.S. Competitive Wholesale Electricity Market
Executive Summary
Seven Independent System Operators (ISOs) or Regional Transmission Operators (RTOs) serve close to 70 percent of all United States electricity consumers. One region of the country, the Southeast, is particularly devoid of this type of market competition. This report details the impacts of enhancing competition for wholesale electricity transactions through a theoretical organized market in the Southeast region. We use a combined production-cost and capacity expansion model of the electric power system in seven Southeastern states (Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, and Tennessee) out to 2040. ...
We find that a competitive Southeastern RTO creates cumulative economic savings of approximately $384 billion by 2040 compared to the business-as-usual (BAU) case. In 2040, this amounts to average savings of approximately 2.5¢ per kilowatt-hour (kWh), or 29 percent in retail costs compared to BAU. 2040 retail costs in the RTO scenario are 23 percent below today’s costs. In the RTO Scenario, carbon emissions fall approximately 37 percent relative to 2018 levels, and 46 percent compared to the IRP Scenario, in which emissions increase. Other major criteria pollutants impacting human health, such as NOX, SO2, and PM2.5, drop dramatically, largely as a result of eliminated coal generation. Emissions gains are driven by a vast deployment of renewable energy resources replacing coal.
Employment benefits begin accruing immediately after the RTO comes into operation, as lost jobs in coal and natural gas generation are replaced by construction jobs related to wind, solar, and battery deployment. By 2040, the RTO scenario creates 285,000 more jobs relative to the business-as-usual scenario, owing to the construction of 62 gigawatts (GW) of solar, 41 GW of onshore wind, and 46 GW of battery storage.
Our BAU case relies on the Integrated Resource Plans of the major investor-owned utilities in these states, in which utilities prescribe a coordinated set of new generating and transmission capacity necessary to meet future load projections. Vibrant Clean Energy’s WIS:dom®-P model then optimizes operations for these projected resource additions and retirements based upon historical dispatch estimates, assuming no further public policy intervention. In this case, the model assumes that each utility must meet its specified load projections and planning reserve margins independently, assuming limited import/export capacity from neighboring utilities and limited transmission expansion.
We compare this scenario to a fully competitive wholesale electric market, in which an RTO administered open market determines the most cost-effective capacity mix and resource dispatch, regardless of where that generation is located or who owns it. The RTO scenario assumes an integrated transmission planning scheme in which all seven Southeastern states share resources and expand transmission in order to meet one regional planning reserve margin at least cost. The competitive RTO Scenario modeled here grants planners and operators in the region the opportunity to co-optimize generation, distribution, and transmission benefits while planning to meet capacity in the most economically efficient way.
A companion policy report additionally details key policies to help achieve competition’s benefits in the Southeast region. We focus on incremental policies that introduce competition into regional dispatch and utility resource planning and procurement. We cover principles for market design to help ensure a regional market is compatible with a cost-effective variable resource mix.
We outline policies that enable regional utilities with net-zero carbon goals to meet those goals effectively while respecting and supporting the fossil-dependent communities that supported economic development in the region.
Despite the fact that new renewable energy and battery storage resources are the least-cost forms of generating electricity, the Southeast region is largely beholden to monopoly utilities that rely on existing coal fleets and new gas-fired power plants to meet consumer electricity needs. This report finds that these utilities continue to inefficiently plan the power grid at great expense to consumers. Wasted excess capacity leads to wasted consumer dollars while stifling clean energy deployment, employment gains, and public health benefits.
Policymakers considering a regional market or state-level competitive procurement should be encouraged by this analysis to keep pressing in legislative and regulatory forums. State stakeholders where utilities block competitive reforms now have new quantitative findings to challenge the assumption that the way utilities have traditionally done business is in the public’s best interest.
By Eric Gimon and Mike O'Boyle, Taylor McNair, Christopher T M Clack, Aditya Choukulkar, Brianna Cote and Sarah McKee
"To Rid The Grid Of Coal, The Southeast U.S. Needs A Competitive Wholesale Electricity Market" by Sarah Spengeman in Forbes on August 23, 2020 https://tinyurl.com/y67co45m notes that:
The Southeastern United States, one of the country’s only regions without a competitive wholesale electricity market, is dominated by monopoly utilities, which have favored expensive and polluting fossil fuel generation over cheap clean energy. Nearly all Southeast coal plants cost more to run than replacing them with new wind and solar, so continuing to run these uneconomic resources forces customers to foot the bill and inhale dirty air. ...
Competitive wholesale electricity markets, or Regional Transmission Operators (RTOs) and Independent System Operators (ISOs), are public-benefit corporations serving 70% of U.S. electricity customers that arose from electricity restructuring during the late 1990s-early 2000s to cut costs and encourage innovation.
Competition in these markets has reduced wholesale energy costs while creating an entry point for low-cost renewable energy to provide power to the grid. They have also been critical to integrating variable renewable energy – wind and solar – and capitalizing on resource diversity over larger geographical areas. ...
Despite ambitious long-term climate announcements, Southeast utilities are still heavily reliant on expensive-to-run coal plants and are doubling down on risky new gas infrastructure investments, instead of clean technologies of the future. ...
Comparing a competitive regional Southeast market through 2040 to a business-as-usual scenario based on existing monopoly utility Integrated Resource Plans reveals remarkable findings. Introducing a Southeast regional competitive market that optimizes regional transmission and shares resources (key features of other RTOs) would save $384 billion dollars with approximately $17.4 billion average yearly savings through 2040 - 23% lower electricity costs compared to today.
These enormous savings come from cheaper wind, solar, and storage displacing more expensive-to-run coal, along with an RTO-led regional transmission planning scheme where all seven states share power resources and expand transmission to most efficiently meet regional electricity demand. VCE’s WIS:dom model also incorporates electricity distribution infrastructure savings from deploying distributed storage and solar resources.
The Bar graph above shows cost reductions reach nearly 32% by 2040 in the competitive scenario compared to just 10% compared to business-as-usual.
In contrast, the current utility-led planning regime is an inefficient patchwork system. Monopoly utilities plan their electric grids independently from their neighbors and impose fees called “wheeling charges” to ship power across successive utility transmission systems. This incentivizes monopolies to over-build power plants, thereby increasing profits for their shareholders. Together, this significant duplication and overbuild of infrastructure costs customers billions....
An online data explorer https://energyinnovation.org/2020/08/25/southeast-wholesale-electricity-market-rto-online-data-explorer/ allows users to compare scenarios and understand state-level impacts:
While new jobs more than replace those lost in coal and gas, some communities will be disproportionately impacted by the transition. A companion policy report to the Southeast modeling highlights successful state policies smoothing the clean energy transition for coal-dependent communities in Colorado and New Mexico, which could be a valuable model for the Southeast.
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