By - Michael Drost

Will Renewables Kill Baseload Power Generation?

coal-plant

By Michael Drost

As if the coal and nuclear industries haven’t been through enough, last week the Independent System Operator of New England (ISO-NE) released an eyebrow-raising report suggesting the expected growth in wind and solar generation assets in New England could drain revenues from conventional baseload generators, causing some nuclear and coal-fired power plants to retire.

Such a prospect is hardly what traditional power plant operators need right now. U.S. coal-fired operators are already hemorrhaging power plants due to low natural gas prices and slow demand growth, while the PR-challenged nuclear industry is at risk of becoming irrelevant as cheap gas-fired power plants and competition from state-subsidized renewable generators provide the safe, low-carbon energy environmentally conscious customers (and state governments) are demanding.

Nor is this something the renewable industry should be gleeful about. Without robust storage and demand response options (technology sectors that are rapidly advancing but not where they need to be), renewables will remain an intermittent source of energy, which means we still need a way to keep the lights on when the sun goes down and when the wind is light. Increased financial pressure on baseload resources like coal and nuclear plants will inevitably result in more asset retirements, which could affect the grid if operators don’t change market rules to recruit enough resources to maintain reliability.

While ISO-NE doesn’t believe it needs to start changing market rules just yet, the shift from energy to capacity revenues seen in the New England grid begs the question: will the influx in renewables ultimately kill the traditional, baseload generation model? And if it does, what will that mean for the utility industry and energy markets as a whole?

We’ve already seen certain markets and utilities start to embrace new business models. In New York, regulators have all but accepted that the traditional utility business model is dead, and are currently in the midst of creating the regulatory blueprint to help utilities accept that reality as well. In Chicago, ComEd recently announced a partnership with smart thermostat provider NestLabs and Xfinity to create a new demand response program that makes small adjustments to home temperatures to better manage load at peak hours. This program, while small, represents a significant shift on the part of ComEd, which in this case essentially dropped the idea that it needs to generate, deliver, and market energy itself, and is instead taking on the role of service provider.

These changes should serve as a model for utilities going forward. As demand response, distributed generation, and renewable integration becomes more and more prevalent, it is inevitable that traditional models for energy production that dominated the market previously, including some baseload resources, will take a step back.  We may even find ourselves, as the state of South Australia did last weekend, facing the prospect of going without baseload generation altogether.  This inevitable shift, fueled by technology and a customer-centric business approach, should not be opposed or feared, but welcomed and prepared for.

Want to learn more about emerging utility business opportunities?  Check out EUCI’s Utility 2.0: Adapting to the New Business Reality conference August 10-11, 2015 in Denver.

 

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