The saying goes that hunters used smoked red herrings to train their dogs, trying to throw them off the scent of the hunt with something that has a much stronger and tempting smell but ultimately wasn’t the real target. This is quite similar to recent discussions about resource adequacy – now that it’s become clear that the EPA isn’t the reason for power plants shutting down, some seem more focused on finding another scapegoat rather than addressing the real problems in the market.
There was a time, not too long ago, when the low marginal costs of technologies like wind and solar power were seen as a good thing. In 2009 the Public Utility Commission (PUC) said “renewable generation has reduced wholesale and retail energy prices during some periods and has been instrumental in moderating price increases during periods in which the cost of natural gas was increasing.” Back then, this was seen as a good thing because there was a need for a moderating influence on high natural gas prices at the time.
Times have changed though, and lately PUC commissioners have taken to blaming wind energy for their current troubles, even when their own paid experts tell them otherwise. In a Senate Natural Resources hearing last week, PUC Chairman Nelson stated that “the market distortions caused by renewable energy incentives are one of the primary causes, I believe, of our current resource adequacy issues.”
The problem with this claim is that it isn’t supported by the facts, and most industry experts agree that the real problem (if you want to call low energy prices a problem) is a combination of a market structure in need of reform and consistently low natural gas prices. In the Brattle Group’s report on resource adequacy issues in ERCOT they make a pretty strong case that gas, not wind, is responsible for setting the bulk of market prices. Perhaps the best way to look at it is this chart showing how electric rates lined up with gas prices over the last decade. Read More