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Taking Green Private

How merchant funding is remaking the rules for renewables.

Fortnightly Magazine - March 2010

Six weeks ago, FERC opened a notice of inquiry to invite industry comments on whether wind, solar, and other intermittent energy sources face unfair obstacles in wholesale power markets.

Now assigned their own acronym—VERs, for “variable energy resources”—renewables make up a growing percentage of the nation’s energy supply portfolio. But as FERC notes, they present “unique challenges,” especially in terms of constraints on location and limits on the degree to which system operators can control or dispatch individual VER units. Thus, FERC suggests that certain common rules and practices, such as those for unit commitment, dispatch, and scheduling, might make it overly difficult to integrate VERs into the grid.

To give VERs a stronger footing, FERC has asked the industry to comment on a string of ideas:

Generation Forecasting . Can grid operators devise and then perhaps share improvements in the data sampling and forecasting of outages and meteorological conditions for wind and solar resource performance?

Unit Scheduling . Would shorter intervals (intra-hour scheduling) reduce reliance on costly regulation reserves to manage variability in gen unit output?

Day-Ahead Markets . Intermittent resources famously tend to avoid bidding in regional DAMs, electing instead to self-schedule supply (as a price taker) in real-time markets. Can operators alter DAM design to attract bids from VERs?

Reliability Commitment . Should grid operators juice up the day-ahead reliability commitment by introducing intra-day assessments, or even sandwich a third market auction between DAM and real-time bidding?

Balancing Areas . Would operational coordination or virtual combinations among smaller balancing areas achieve economies by expanding the geographic diversity of location-constrained wind and solar arrays?

Ancillary Services . Create another category of service for VERs to reduce their over-reliance on expensive regulation reserves to maintain reliability during ramping (powering up)?

Capacity Markets . Should the regions with RTO-sponsored capacity markets boost VERs’ thin participation by relaxing the typical requirement that capacity bidders also must offer supply in day-ahead markets? ( See, Docket No. RM10-11, Jan. 21, 2010, 130 FERC ¶61,053. )

These ideas appear perfectly logical and, as the solutions center largely on technical and engineering fixes, rather than political collaboration, they should prove perfectly doable over the long haul.

Meanwhile, however, there remains another, more fundamental factor that also affects the integration of variable resources— the growing participation of private (non-utility) money in the renewable infrastructure.

Recall that FERC’s twin tenets of electric restructuring—unbundling and open access—stem directly from the assumption that infrastructure funding comes from utilities: “monopoly” money raised from captive customers. Under this assumption, the industry needs open access to protect itself from market power. But merchant money behaves differently from monopoly money. Merchant money craves certainty. It’s more uncompromising, yet also twitchy and nervous.

Does merchant-funded infrastructure also require open access as protection from market power?

Virtual Open Access

In late January, SunZia Transmission LLC and the various owners of the SunZia Southwest Transmission Project ( www.sunzia.net)

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