IHS Markit Study: Eroding Cost-Effective Diversity in U.S. Power Grid Will Result in Greater Price Fluctuations, Higher Power...
September 19 2017 - 8:15AM
Business Wire
U.S. power grid becoming less cost-effective, less reliable and
less resilient due to lack of harmonization between federal and
state policies and wholesale electricity market operations, study
says
The U.S. power grid is on track to lose cost effective power
supply diversity, a trend that will raise the cost and variability
of power bills and create negative macroeconomic impacts that would
ripple out through the broader U.S. economy, a new study by IHS
Markit (Nasdaq: INFO), a world leader in critical information,
analytics and solutions says.
The new study, titled Ensuring Resilient and Efficient
Electricity Generation: The Value of the Current Diverse U.S. Power
Supply Portfolio says that current policy-driven market distortions
will precipitate a less efficient diversity portfolio where some
U.S. power systems could have no meaningful contributions from coal
or nuclear resources and a smaller contribution from hydroelectric
resources. They will rely on a tripling of the current 7 percent
reliance on wind, solar and other intermittent resources, and on
natural gas-fired resources to supply the majority of
generation.
To illustrate what is at stake if nothing is done to arrest the
erosion in the cost-effectiveness, resilience and reliability of
the current U.S. power supply mix, the study compares the actual
industry performance of recent years (2014 to 2016) with that of a
less efficient diversity portfolio case over the same time
period.
The comparison between the two portfolios found that the current
diversified U.S. electric supply portfolio:
- Lowers the cost of electricity
production by around $114 billion per year;
- Lowers the average retail price of
electricity by 27 percent
- Avoids an annual loss of $98
billion in consumer net-benefits from electricity
consumption;
- Reduces the variability of monthly
consumer electricity bills by around 22 percent; and
- Mitigates an additional $75 billion
per hour cost associated with more frequent power supply
outages.
Comparing the broader economic impacts of the less efficient
diversity case to the IHS Markit baseline simulations for the U.S.
economy indicates the following macroeconomic impacts from the
resulting increase in retail power prices:
- A decline of real U.S. gross domestic
product (GDP) by $158 billion (0.8 percent in 2016
chain-weighted dollars);
- A reduction in 1 million jobs;
and
- $845 less in real disposable
income annually per household.
“It is easy to take the cost-effective diversity of the current
U.S. electric supply portfolio for granted," said Lawrence
Makovich, IHS Markit chief power strategist and the study’s lead
author. "But a comparison of the two cases in our analysis shows
that increasing exposure to the challenge of managing the
misalignment of intermittent generation with consumer demands—plus
the price volatility and deliverability constraints of natural
gas—reduces benefits to households and reduces the competitive
position of U.S. businesses in the global marketplace.
“Diversity of supply is an essential bedrock for security and
reliability for an electric power system that is as big and
diverse—and as crucially important—as that of the United States,”
Makovich said.
The study also found that the less efficient diversity portfolio
case likely results in little to no reduction in the level of
electric sector CO2 emissions.
“Ironically, addressing climate change concerns with federal and
state policies to subsidize and mandate wind and solar electric
generation produced the unintended consequence of distorting
wholesale electricity market clearing prices and driving the
uneconomic closure of nuclear power plants—a zero-emitting source.
The result has been some power system CO2 emissions remaining
constant or increasing,” Makovich said.
The study says that actions to preserve the consumer
net-benefits of grid-based power supply range from reforming market
rules along with either eliminating or phasing out the root causes
of market distortions or implementing market interventions to
offset the impacts of the ongoing market distortions.
Eliminating market distortions—the most straightforward
option—may not be politically feasible, the study notes.
Therefore, an alternative approach would involve regulatory
approval and implementation of offsetting market interventions such
as:
- Market rule changes to align
security-constrained price formation with power system marginal
generating costs to accurately reflect in market-clearing prices
the cost of reliability and resilience
- Payments for cost-effective generation
attributes such as the value of contributions to power system
resiliency and the value of environmental attributes.
To do this requires appropriate changes in operating and
planning rules and standards at the federal, state and RTO/ISO*
levels, the study finds.
“The U.S. power sector is at a critical juncture,” Makovich
added. “Altogether, harmonizing policy initiatives and market
operations can help preserve the net-benefits to U.S. consumers of
a more cost-effective power supply portfolio. Doing nothing likely
results in higher and more varied monthly power bills in the
decades ahead compared to doing something that preserves a more
reliable, resilient and cost-effective U.S. electric supply
portfolio for consumers in the future.”
* Regional Transmission Organizations/Independent System
Operators
About The Report
Download the complete report at
http://ihsmark.it/FezQ30feH62.
Ensuring Resilient and Efficient Electricity Generation: The
Value of the Current Diverse U.S. Power Supply Portfolio from IHS
Markit utilizes the company’s extensive knowledge and proprietary
models of the interaction between regional power system demand and
supply to assess the impact on consumers and the U.S. economy of
current trends moving the U.S. power sector toward a significantly
less efficient mix of fuels and technologies for power production.
The retail price impacts from wholesale power market distortions
provide the inputs into IHS Markit macroeconomic models to generate
the national impacts to U.S. household disposable income,
employment, and GDP growth. This research was supported by the
Edison Electric Institute, the Nuclear Energy Institute and the
Global Energy Institute at the U.S. Chamber of Commerce.
IHS Markit is exclusively responsible for all of the analysis
and content.
About IHS Markit
(www.ihsmarkit.com)
IHS Markit (Nasdaq: INFO) is a world leader in critical
information, analytics and solutions for the major industries and
markets that drive economies worldwide. The company delivers
next-generation information, analytics and solutions to customers
in business, finance and government, improving their operational
efficiency and providing deep insights that lead to well-informed,
confident decisions. IHS Markit has more than 50,000 key business
and government customers, including 85 percent of the Fortune
Global 500 and the world’s leading financial institutions.
Headquartered in London, IHS Markit is committed to sustainable,
profitable growth.
IHS Markit is a registered trademark of IHS Markit Ltd and/or
its affiliates. All other company and product names may be
trademarks of their respective owners © 2017 IHS Markit Ltd. All
rights reserved.
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