Ya know how I suspect you don't have a cogent argument? You make crap up to try to scare people to support your position. And that seems to be what happened when the Federal Energy Regulatory Commission ordered a re-vamp of PJM Interconnection's capacity auction.
PJM's markets are a confusing mess that not a lot of folks understand. Regular people understand pretty much nothing about PJM's electricity markets that supposedly serve their electric needs and provide power at prices that save consumers money. That's what PJM says anyhow, and since most consumers don't even know that PJM exists in the first place, it's pretty much an "I don't care" situation. But, in the energy world, PJM's markets are a big deal, a real big deal. PJM's markets have been gamed and influenced to provide the most profits to energy suppliers forever. That's why PJM has a Market Monitor to keep an eye on things to try to outsmart the gamers.
Over the last decade, states who have authority over their own electric generation mix, have attempted to encourage the generation source of their choice by providing subsidies. But when those subsidies interfere with PJM's regional electric market, it becomes non-competitive. One time, a state wanted to provide subsidies to a new generator that made up the difference between the generator's revenue and the PJM market so that it could offer and be accepted into PJM's capacity market. The courts said that was not permissible. State subsidies cannot be tied to PJM's market. Since then, numerous states have found ways to subsidize their generation of choice without overtly tying it to PJM's market. But the subsidies DO affect PJM's market, making that generation source "cheaper" so that it can offer a lower bid into the capacity market because the state is covering some of the generator's costs.
You only need a rudimentary knowledge of how PJM's capacity market works to understand this. Capacity isn't electricity. Capacity is the ability to produce electricity when called upon to do so. Generators are paid for their capacity separately from the actual power they provide. Because PJM has a need for a certain amount of electricity to keep the power on, it has to know that it will be available. PJM sets its resource number for each year three years in advance, then holds an auction of sorts. Generators with available capacity submit sealed bids. PJM stacks the bids by price. It then accepts bids, starting with the lowest, until it get up the stack to the amount of generation that meets its resource requirement. All generators accepted in this process are paid the top clearing price. Say the generator supplying the last bit of capacity bid $50, that means that every generator accepted gets paid $50, even though they may have bid in at a lower amount. It pays to be a lower bid in the capacity market. A generator can provide a lower bid because it receives subsidies. Without subsidies, it would have to bid in at a higher cost, and that could mean that it doesn't clear the auction. It would also mean that the ultimate price for all the capacity would rise if all generators had to bid in at their unsubsidized cost. This subsidy gaming of PJM's market has been going on forever, but in such small amounts that it didn't really affect the market.
But in recent years, states have gone wild with the subsidies for renewables and other favored generation, such as nuclear. With all these new subsidies, the market price tanked and the unsubsidized resources were forced out of the market. Many have closed. A market made up of subsidized resources is artificially priced and not really a competitive market at all.
So, FERC has been trying to fix this. One fix is to strip subsidies from offered resources to make them bid in at a realistic price. That's what FERC did just before Christmas. It ordered PJM to revise its MOPR (Minimum Offer Price Rule) to nullify the effect of state subsidies.
And then all hell broke loose.
The self-serving environmental groups and renewable and other generators benefiting from subsidies freaked out. And this happened.
PJM's markets are a confusing mess that not a lot of folks understand. Regular people understand pretty much nothing about PJM's electricity markets that supposedly serve their electric needs and provide power at prices that save consumers money. That's what PJM says anyhow, and since most consumers don't even know that PJM exists in the first place, it's pretty much an "I don't care" situation. But, in the energy world, PJM's markets are a big deal, a real big deal. PJM's markets have been gamed and influenced to provide the most profits to energy suppliers forever. That's why PJM has a Market Monitor to keep an eye on things to try to outsmart the gamers.
Over the last decade, states who have authority over their own electric generation mix, have attempted to encourage the generation source of their choice by providing subsidies. But when those subsidies interfere with PJM's regional electric market, it becomes non-competitive. One time, a state wanted to provide subsidies to a new generator that made up the difference between the generator's revenue and the PJM market so that it could offer and be accepted into PJM's capacity market. The courts said that was not permissible. State subsidies cannot be tied to PJM's market. Since then, numerous states have found ways to subsidize their generation of choice without overtly tying it to PJM's market. But the subsidies DO affect PJM's market, making that generation source "cheaper" so that it can offer a lower bid into the capacity market because the state is covering some of the generator's costs.
You only need a rudimentary knowledge of how PJM's capacity market works to understand this. Capacity isn't electricity. Capacity is the ability to produce electricity when called upon to do so. Generators are paid for their capacity separately from the actual power they provide. Because PJM has a need for a certain amount of electricity to keep the power on, it has to know that it will be available. PJM sets its resource number for each year three years in advance, then holds an auction of sorts. Generators with available capacity submit sealed bids. PJM stacks the bids by price. It then accepts bids, starting with the lowest, until it get up the stack to the amount of generation that meets its resource requirement. All generators accepted in this process are paid the top clearing price. Say the generator supplying the last bit of capacity bid $50, that means that every generator accepted gets paid $50, even though they may have bid in at a lower amount. It pays to be a lower bid in the capacity market. A generator can provide a lower bid because it receives subsidies. Without subsidies, it would have to bid in at a higher cost, and that could mean that it doesn't clear the auction. It would also mean that the ultimate price for all the capacity would rise if all generators had to bid in at their unsubsidized cost. This subsidy gaming of PJM's market has been going on forever, but in such small amounts that it didn't really affect the market.
But in recent years, states have gone wild with the subsidies for renewables and other favored generation, such as nuclear. With all these new subsidies, the market price tanked and the unsubsidized resources were forced out of the market. Many have closed. A market made up of subsidized resources is artificially priced and not really a competitive market at all.
So, FERC has been trying to fix this. One fix is to strip subsidies from offered resources to make them bid in at a realistic price. That's what FERC did just before Christmas. It ordered PJM to revise its MOPR (Minimum Offer Price Rule) to nullify the effect of state subsidies.
And then all hell broke loose.
The self-serving environmental groups and renewable and other generators benefiting from subsidies freaked out. And this happened.
“Trump and FERC are selling us out to the fossil fuel industry. They are adding billions of dollars in subsidies for coal, oil, and natural gas at the expense of green jobs and our health. They will now be getting over $6 billion a year just from our PJM grid alone, in addition to $15 billion a year in direct federal subsidies and all types of indirect subsidies. These dirty industries cannot compete with cheaper and cleaner renewable energy, so they are looking for a massive subsidy at our expense. This will hurt green jobs and public health,” said Jeff Tittel, Director of the New Jersey Sierra Club.
Honestly, what rubbish!!! He says that FERC added billions of dollars of subsidies for coal, oil and natural gas. They did no such thing. That's an outright lie. FERC did not give new subsidies to any generators, it simply mitigated the existing subsidies for renewables and nuclear. If all generators exist on an even playing field, it is not instituting new subsidies. And then he whines about "federal subsidies." The FERC order didn't touch federal subsidies, like the production tax credit for new wind generators. FERC felt it had no authority to nullify federal subsidies, just state subsidies.
The environmental groups have been whining about subsidies for a number of years. As subsidies for renewable generators took off into a billion dollar industry, environmental groups chose to defend that by pointing to what it calls existing subsidies for fossil fuel generation. Try to have a debate with any cleaniac about renewable energy subsidies, and they deflect by claiming other generators are getting just as much in other subsidies. It's not true, but it serves to change the argument to one about dueling subsidies and away from public outrage at the juicy subsidies filling the pockets of renewable energy companies. There are no overt subsidies of fossil fuel generation that come even close to those provided by the federal government for utility scale wind and solar. Big Green insists renewable subsidies are no greater than those provided to fossil fuels.
But when FERC removed all state subsidies for all generators, Sierra Club whines that renewables are hurt by it. If the subsidies are equal, then removing them all doesn't change anything. Apparently there are more subsidies for renewables than there are for fossil fuels, or renewables wouldn't be hurt by their removal. Big Green's favorite argument has flamed out. It no longer has any relevance.
I'm going to guess that the Sierra Club guy crying about shameful giveaways didn't even bother to read the FERC Order before beginning to bellow. That's pretty shameful in itself. I actually did read the order, hard as it was to stomach, and I can't find any basis for the nonsense spewing from Sierra Club. What I find interesting is the whole state v. federal thing. If states are providing subsidies to certain generators, those subsidies are coming from state consumers and/or taxpayers. The subsidies are affecting a regional market, not just one contained within the borders of the state. So, if New Jersey subsidizes nuclear generators and that lowers the regional capacity market price, I would get a price benefit here in West Virginia. Thanks, New Jersey! And now, if New Jersey is still providing a subsidy to generators that does not lower prices in the regional market, and market prices go up, New Jersey citizens are sort of paying twice for the same subsidy. Maybe they should rethink their subsidy, instead of trying to visit it upon everyone else?
Some claim FERC's Order will cause a great exodus from PJM and its regional market. Buh-bye, don't let the door hit you on the way out. If a state wants to subsidize certain kinds of generation that fits with its political goals, then it needs to keep that subsidy within its own borders. Go ahead, subsidize what you want. That's a state issue. I could be selfish and parochial here, since New Jersey and other states are subsidizing the regional capacity prices I have to pay, and only worry about my own bottom line. But the continued (and increased) state subsidies are causing existing generation to drop out of the market as uneconomic. That's generation that we've all paid for over the years, replaced by new generation that we're all going to have to pay for over the next 50 years. At some point, this kind of a market is going to explode. Regional capacity prices will be pure fiction, totally influenced by individual state policies.
So, do we really need a regional capacity market? Do we really need to know that sufficient generation will be available 3 years from now to keep the lights on, or should we depend on state generation policies to provide adequate generation for their own state? Or, maybe we should just cross our fingers and hope the lights come on three years from now, when existing baseload generators are all gone and we're depending on a new crop of intermittent generators whose capacity factors are quite small? Remember, capacity is a generator's ability to generate power when called. Those coal and gas generators have high capacity factors because they can generate any time from stockpiled fuel. Wind and solar, however, have very small capacity factors because they rely on the vagaries of weather and sunlight to supply their fuel in real time. If we add huge battery capacity to create a stockpile, that has a huge additional cost. Because the capacity factors of renewable generators are so small, we need to hugely overbuild them to guarantee any amount of capacity. How would this end up being "cheaper"? State generation subsidies are merely skewing the market for now, with big problems down the road.
Let's see what FERC's Order does to PJM's capacity market, and if we're actually getting some surety from the "increased" costs it imposes. Today's prices aren't really lower, they're subsidized and being paid outside PJM's market through state subsidies. What if you added up the current capacity market costs and all existing state subsidies that will now be nullified? That's the actual true cost of capacity. This order won't so much increase prices as it will re-allocate who pays the cost of capacity.
The sky isn't falling. There's no slobbering wolf wandering through town. It's just Sierra Chicken Little and all his chickie friends telling us once again that the world is ending because they didn't get their way. Thank goodness there are energy professionals that actually understand these markets and don't base their decisions on a bunch of propaganda and whining.
The environmental groups have been whining about subsidies for a number of years. As subsidies for renewable generators took off into a billion dollar industry, environmental groups chose to defend that by pointing to what it calls existing subsidies for fossil fuel generation. Try to have a debate with any cleaniac about renewable energy subsidies, and they deflect by claiming other generators are getting just as much in other subsidies. It's not true, but it serves to change the argument to one about dueling subsidies and away from public outrage at the juicy subsidies filling the pockets of renewable energy companies. There are no overt subsidies of fossil fuel generation that come even close to those provided by the federal government for utility scale wind and solar. Big Green insists renewable subsidies are no greater than those provided to fossil fuels.
But when FERC removed all state subsidies for all generators, Sierra Club whines that renewables are hurt by it. If the subsidies are equal, then removing them all doesn't change anything. Apparently there are more subsidies for renewables than there are for fossil fuels, or renewables wouldn't be hurt by their removal. Big Green's favorite argument has flamed out. It no longer has any relevance.
I'm going to guess that the Sierra Club guy crying about shameful giveaways didn't even bother to read the FERC Order before beginning to bellow. That's pretty shameful in itself. I actually did read the order, hard as it was to stomach, and I can't find any basis for the nonsense spewing from Sierra Club. What I find interesting is the whole state v. federal thing. If states are providing subsidies to certain generators, those subsidies are coming from state consumers and/or taxpayers. The subsidies are affecting a regional market, not just one contained within the borders of the state. So, if New Jersey subsidizes nuclear generators and that lowers the regional capacity market price, I would get a price benefit here in West Virginia. Thanks, New Jersey! And now, if New Jersey is still providing a subsidy to generators that does not lower prices in the regional market, and market prices go up, New Jersey citizens are sort of paying twice for the same subsidy. Maybe they should rethink their subsidy, instead of trying to visit it upon everyone else?
Some claim FERC's Order will cause a great exodus from PJM and its regional market. Buh-bye, don't let the door hit you on the way out. If a state wants to subsidize certain kinds of generation that fits with its political goals, then it needs to keep that subsidy within its own borders. Go ahead, subsidize what you want. That's a state issue. I could be selfish and parochial here, since New Jersey and other states are subsidizing the regional capacity prices I have to pay, and only worry about my own bottom line. But the continued (and increased) state subsidies are causing existing generation to drop out of the market as uneconomic. That's generation that we've all paid for over the years, replaced by new generation that we're all going to have to pay for over the next 50 years. At some point, this kind of a market is going to explode. Regional capacity prices will be pure fiction, totally influenced by individual state policies.
So, do we really need a regional capacity market? Do we really need to know that sufficient generation will be available 3 years from now to keep the lights on, or should we depend on state generation policies to provide adequate generation for their own state? Or, maybe we should just cross our fingers and hope the lights come on three years from now, when existing baseload generators are all gone and we're depending on a new crop of intermittent generators whose capacity factors are quite small? Remember, capacity is a generator's ability to generate power when called. Those coal and gas generators have high capacity factors because they can generate any time from stockpiled fuel. Wind and solar, however, have very small capacity factors because they rely on the vagaries of weather and sunlight to supply their fuel in real time. If we add huge battery capacity to create a stockpile, that has a huge additional cost. Because the capacity factors of renewable generators are so small, we need to hugely overbuild them to guarantee any amount of capacity. How would this end up being "cheaper"? State generation subsidies are merely skewing the market for now, with big problems down the road.
Let's see what FERC's Order does to PJM's capacity market, and if we're actually getting some surety from the "increased" costs it imposes. Today's prices aren't really lower, they're subsidized and being paid outside PJM's market through state subsidies. What if you added up the current capacity market costs and all existing state subsidies that will now be nullified? That's the actual true cost of capacity. This order won't so much increase prices as it will re-allocate who pays the cost of capacity.
The sky isn't falling. There's no slobbering wolf wandering through town. It's just Sierra Chicken Little and all his chickie friends telling us once again that the world is ending because they didn't get their way. Thank goodness there are energy professionals that actually understand these markets and don't base their decisions on a bunch of propaganda and whining.
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