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Market competition can ‘solve’ for low-cost carbon reduction

June 14, 2017

Commentary originally appeared in IHS, The Energy Daily, ED Vol 45 • No 102-RP May 30, 2017

The Federal Energy Regulatory Commission earlier this month brought together states, industry, and environmental groups for a technical conference that represented a crucial first step in charting a path for tomorrow’s power markets at a critical juncture for the future direction of the U.S. energy sector.

At NRG, we imagine a future where FERC acts immediately to accommodate state goals in markets, while protecting competition through next-generation market structures. Achieving this delicate balance requires states and federal regulators collaborate to ensure that public policy goals are achieved in markets.

This vital direction for U.S. energy markets comes as our nation’s energy industry enters the beginning of an investment “super-cycle,” brought on by aging power plants reaching the end of their service and needing to be replaced with new facilities. According to the Energy Information Administration, 10 percent of the generation capacity in the United States is over 50 years old. By 2025, 20 percent will be eligible for AARP membership.

Whether those power plants are replaced by renewable energy projects, or high-tech natural gas-fired power plants that emit less carbon dioxide (CO2) than existing power plants, competitive energy markets—not Washington—should decide where scarce investment dollars are spent and which technology mix will prevail.

The fact that competitive markets give consumers the best possible deal is something that even a divided Washington should be able to agree upon. Indeed, a group of Republican lawmakers—Reps. Elise Stefanik (N.Y.), Carlos Curbelo (Fla.) and Ryan Costello (Pa.), along with 14 other co-sponsors—introduced a resolution that calls for using American innovation to improve environmental stewardship. 

The resolution calls for the commitment to address climate change through “American ingenuity, innovation, and exceptionalism,” citing the “conservative principle to protect, conserve and be good stewards of our environment.” It also urges their colleagues to “support market-based solutions, investments, and innovations.”

Competition is part of the American character. It will unlock the ingenuity necessary to create jobs, reinforce economic growth and position the United States as a global technology leader. Conservative or liberal, we can all agree that competitive markets will achieve state environmental mandates at the least possible cost. This year, let’s take action to unleash competition and innovation into our markets so that they, by very design, become the vehicle through which we create a more sustainable energy future.

Our current power markets were developed years ago—in some cases, decades ago. They were foremost designed to deliver reliable, affordable power. We need a new paradigm where we expressly ask markets to “solve” for low-carbon outcomes at the lowest possible cost to ratepayers.

This means saying “no” to bailouts and subsidies targeted to aging, uneconomic power plants, and “yes” to competitive market policies that ensure ratepayers get the most carbon reduction for their hard-earned dollar. Otherwise, retail rates will increase, consumers will have few environmental benefits to show for it, and American innovation—and jobs—will be at risk.

Today, hundreds of communities across the United States are economically dependent on today’s aging energy infrastructure. Revitalizing these communities requires replacing aging infrastructure with the state-of-the-art, low-carbon resources necessary to support employment for decades to come.

Competitive markets are best positioned to ensure that this transition to 21st century infrastructure results in thoroughly risk-assessed investments, and protects communities from ‘white elephant’ investment choices that serve only to enrich favored political interests.

As state governments increasingly adopt environmental targets, we must structure our wholesale energy markets to meet these mandates at the lowest costs. New market structures can fuel substantial progress toward a sustainable energy future if we make meeting state targets an explicit goal.

Competitive wholesale and retail markets already have a proven track record of expanding consumers’ access to clean energy resources and deploying billions of dollars in new infrastructure. For example, organized wholesale power markets are home to the overwhelming majority of the country’s wind and solar power plants. In particular, wholesale power markets have served as an essential vehicle through which corporates like Google and Apple continue to realize their ambitious clean energy goals.

According to the Advanced Energy Economy, 71 companies within the Fortune 100 have set public renewable energy or sustainability targets, 22 of which have commitments to procure 100 percent renewable energy. In fact, Google stated in a 2016 company white paper that 19 of its 20 renewable energy facilities brought online since 2010 are located in competitive power markets.

The National Renewable Energy Laboratory also reports that competitive suppliers provided some 15.4 million megawatt hours of green power to 1.5 million customers in 2015—more than utility green pricing and green tariff programs combined. And, according to a 2016 Corporate Eco-Forum report, competitive market products and services represented the bulk of clean energy procurement instruments for major corporations and households—not niche regulated utility tariffs.

Because they are agile and responsive by design, competitive markets are much more equipped than regulated models to adapt to customers’ preferences and needs. This is one reason why consumers in Nevada, Washington and California have paid millions of dollars to “fire” their utility as their retail provider in favor of competitive providers. This thereby empowers the customer to drive the future of energy solutions—rather than the other way around—and makes it easier for customers to find the top-quality and innovative solutions they desire.

It is time we utilize competitive markets to enable diverse, cleaner energy sources. When supplemented with investments in innovation and smart policy solutions, re-designed market structures rooted in competition can hold the key to ensuring a low-carbon and environmentally safer future. With meaningful action and careful shifts toward needed solutions, 2017 has the potential to be a milestone year in energy.

—Abe Silverman is vice president and deputy general counsel at NRG Energy.

 

 

Confidential. © 2017 IHS Markit™. All rights reserved. Reprinted with permission.

Abraham Silverman

In-house counsel to NRG Energy, Inc., handling regulatory and litigation matters. Specialties: Energy regulatory law, commercial litigation, power purchase agreements, energy market design, generator...

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