A no-holds-barred interview with the electric industry’s chief architect of wholesale electric market design.
Walking the Walk
Eco-Developer Pat Wood III explains how competitive markets are good for green business.
fund a PTC. So you look at a renewable portfolio standard. I’m not saying it’s the perfect incentive mechanism, but the RPS worked for us in Texas. If it were a federal program, it would be important—and fair—to allow for a renewable credit trading system that trades nationally so that, for example, if it is cheaper to buy a solar credit from New Mexico than to build a biomass plant in Georgia, you would do so. And if you have a carbon [tax or cap-and-trade] program, you would sweep in non-renewable clean technologies—nuclear, carbon-sequestered coal—and not have the regional haves and have-nots that may come from a pure renewable program.
Fortnightly: How would you sort out the allocation debates that are cropping up in the industry over a cap-and-trade system?
Wood: That’s where the cap-and-trade thing is so painful, as opposed to putting a flat tax on carbon. I lived through a FERC version of this. I don’t know if you remember when MISO (Midwest Independent System Operator) went to a full wholesale market. We had to allocate the transmission rights. That was the most painful process. We allocated them primarily to the people who were using the power grid today.
It was a dreadful, long process and required a lot of arm twisting. Can you imagine doing that across the entire economy for carbon-emission allowances? Some utilities will argue to allocate them on the basis of customers, and other utilities want to allocate based on how much carbon they are emitting today.
If those were the two choices, I would think FPL, Exelon, and Entergy, for example, would want the first, and AEP, Southern, and TXU would want the second. So what do you do? Maybe the tax approach is easier. But cap-and-trade is more intellectually appealing because it does allow for the efficient polluter to stay in business. That would be the reason you would want a cap-and-trade. But does it put too much power in the hands of a bureaucracy to get the number just right? In Europe they got the number too big, they set the carbon level too high, and their trading system hasn’t done much to reduce emissions. If you set it too low, you could kill the economy. So, I worry about that with a cap-and-trade system, too.
Fortnightly: What do you think renewable technologies need in terms of policy?
Wood: They need a workable market and rules that allow them to be useful to customers. That’s why Texas is attractive—lots of buyers and sellers. In other places, where you have one utility buyer and a number of sellers that are competing to sell to that utility, it is not a very vibrant, give-and-take business relationship. … I think customers are not benefited in the long term by the big, single buyer buying on behalf of everybody because eventually the suppliers say, “Hell, I’ll go somewhere else.”
So, you need that. You also need good grid policies, whether that be transmission expansion and balancing markets for wind or net metering and low standby charges for