New Report: Competition Leads to Savings and Cleaner Energy

By: John Finnigan and Dick Munson

To compete, or not to compete – that is the question facing today’s electricity industry.

On one side of the debate are utilities with uneconomic power plants, which are unable to prosper in regional, competitive electricity markets. Faced with low natural gas prices and dramatically declining renewable energy costs, these utilities want bailouts for their aging coal fleets, or they want to relive their glory days as monopolies with guaranteed profits and no pesky corporate rivals. Ohio-based FirstEnergy – which has long waged war on clean energy and campaigned for a bailout – serves as the poster child of this camp.

On the other side are those that recognize the myriad benefits of competition. This includes power companies that didn’t double down on coal and do operate their plants efficiently. There are also nontraditional players – like cleantech entrepreneurs and renewable energy producers – who desire access to the market and a level playing field.

Fortunately, the pro-competition side just got a big endorsement from the nation’s largest grid operator, PJM Interconnection. PJM issued a newly-revised report that confirms bailouts and re-monopolization are not the solution, and competitive markets are the best path for lower-cost, cleaner energy.

Competition saves money

Before regional markets were established, each utility had to build enough power plants to both serve its customers and provide a safety margin, allowing it to produce more electricity during the most extreme conditions (e.g. during a heat wave). As a result, each utility had excess generating capacity, unused power plants available at all times even though there was very little demand. By pooling each utility’s excess generating capacity and making it available throughout the region, regional markets reduce the amount of excess generating capacity needed, resulting in enhanced efficiency and tremendous savings.

Market competition results in utilities offering power – like from coal plants or wind turbines – at different prices, allowing the market to “select” the lowest-cost option. According to the report, the PJM market leads to “lower overall costs of system operation by eliminating seams, reducing transaction costs, and permitting a free flow of lower-cost energy across the wider region,” saving its customers up to $3.1 billion every year. Another regional market operator, MISO, has saved its customers up to $16.8 billion from 2007 through 2015.

[Tweet “New Report: Competition Leads to Savings and Cleaner Energy”]

Competition encourages cleaner energy

Regional pooling of electricity resources not only saves customers money, but also reduces harmful pollution because older, dirtier power plants shut down as their excess capacity is no longer needed. It also benefits the community by creating jobs as utilities make a transition to modern, clean energy facilities. Plus, with the falling cost of renewables and no end in sight to low natural gas prices, the winning resources are increasingly both cleaner and less expensive than coal.

Markets also open the door to new participants that offer cleaner, more efficient energy. For example, PJM allows demand response – a dynamic tool that rewards buildings, homes, and industrial facilities for reducing their electricity use. Innovative energy conservation tools like demand response are now able to compete head-to-head with more traditional resources.

In order to reap these benefits, the market must be allowed to work. The PJM report explains that subsidies for older plants, like those FirstEnergy continues to seek in Ohio, destroy competition and prevent customers from getting the lowest prices and the cleanest energy. In other words, granting bailouts or returning to a regulated model would essentially eliminate all of the competitive market’s rewards. Luckily, many groups – like PJM and the consumers, manufacturers, and environmental groups in Ohio – are vigilant and will champion competitive markets whenever regressive bailouts and monopolies are proposed.