RGGI Transition Consequences

Continually Increasing Rates - Difficult Investment Climate

The Regional Greenhouse Gas Initiative (RGGI) states are continuing their planned transition to a renewable plus storage electric grid. Load growth and the shuttering of conventional generation capacity are moving them toward “Tipping Points”, beyond which renewable generation additions would be required to be dispatchable, so that they could replace conventional generation capacity rather than just displace a growing portion of its output.

The intermittency and low capacity factors of renewable generation would require massive generation and storage capacity to continue supplying power during periods of low/no renewable generation output which might persist for several days. The required generation and storage capacity is far more expensive than both the existing and new conventional coal and natural gas generation capacity it would replace. The renewable generation and storage system components have significantly shorter expected useful lives than conventional generation systems and would be depreciated more rapidly.

The most obvious consequence of the continued transition is that electric rates, already significantly higher than the US average, would continue to increase, expanding energy poverty and operating cost pressures on businesses. Electricity users would pay the price, either as ratepayers or as taxpayers or both.

The other obvious consequence is the necessity to raise substantially greater investment capital to fund the required generation, storage and transmission infrastructure. There is a lingering question regarding which organizations would fund which aspects of the transition.

Electric utilities are already under substantial political pressure about the existing above average rates from politicians and others who can’t understand, or refuse to acknowledge, that those rates have largely been driven by the transition. The Governor of New Jersey has issued an executive order freezing electric rate increases and pressure is being applied to state utility commissions to limit rate increases. Frozen or constrained rates would make it more difficult and more expensive for the utilities to raise the required capital.

Renewable generation developers have constantly bragged that renewables represent the cheapest source of electricity, callously ignoring the difference in capacity value between intermittent and dispatchable generation. A requirement to make their output dispatchable would dramatically increase the investment required per unit of generating capacity and destroy their cheapest source argument. A requirement that they bring their output to the grid rather than the grid extending to them would further increase their investment requirements.

The transition might also create a market opportunity for merchant storage providers which could contract with utilities or renewable generators to provide firming service for intermittent generation. These merchant storage providers would find themselves competing with intermittent generators in much the same way the existing conventional generators do when functioning as backup, driving up capacity contract pricing.

Regardless of which entities provide the investments, dispatchable renewable generation would expand to replace conventional generation and meet grid demand growth, existing intermittent renewable generation would have to be firmed with storage to become dispatchable, and transmission would have to be expanded to connect the additional generation and storage capacity to existing and expanding loads.

Increased investment per unit of electricity sold would require incremental returns, leading increased prices per unit of electricity sold.

TANSTAAFL: There ain’t no such thing as a free lunch.

Originally published here.