Over the past several years, the electric generation industry in the United States has been transitioning to construct more renewable energy resources and retiring fossil fuel generation (primarily coal). There have been many driving forces that have created this transition to more renewable energy resources including, but not limited to, shifting public policy, increasing environmental regulations, age of coal generation facilities, new technologies for natural gas extraction methods and newly discovered reserves that led to lower natural gas prices, financial incentives and subsidies for renewable energy resources, etc. As the results of a recent generation capacity auction have revealed, the transition away from fossil fuel generation resources to more renewable energy resources in the Midwest has occurred too quickly creating a lack of generation capacity and a subsequent drastic price increase in generation capacity.
Your Cooperative’s wholesale generation and transmission supplier is Southern Illinois Power Cooperative (SIPC) located at the Lake of Egypt. SIPC is a participant in the Midcontinent Independent System Operator (MISO). MISO, which is one of seven Regional Transmission Organizations (RTO’s) across the U.S., is responsible for managing and operating the electric grid in 15 midwestern states which includes most of Illinois. MISO conducts a generation capacity auction every year in which utilities can purchase additional generation capacity (if needed) to serve the peak requirements of their consumers or utilities can sell any excess generation capacity into the market. The most recent generation capacity auction, which captures generation capacity requirements for June 1, 2022 thru May 31, 2023, cleared at a price of $236.66 per MW-Day which is 47 times higher than the $5 per MW-Day clearing price last year. Unfortunately, this equates to a price increase of 4,633%. The price spike was due to insufficient generation capacity in the auction needed to meet overall regional load requirements. This puts the Midwest at an increased risk of running short of needed generation capacity this summer during peak demand times.
Historically, fossil fuel generation facilities have proved to be very reliable in meeting peak demands. These fossil fuel generation facilities are dispatchable which means they can be controlled by operators to generate at very high or low levels by changing fuel levels depending upon the consumers demand for electricity. Conversely, wind and solar generation facilities can’t be controlled by operators due to the fact that their generation levels are controlled by the amount of wind or sun that’s available. As MISO’s generation accreditation has revealed, wind generators in the Midwest are operating at approximately 15% of their nameplate capacity rating during summer peak demand periods and solar generators in the Midwest are operating at approximately 50% of their nameplate capacity rating during summer peak demand periods. Therefore, more reliable fossil fuel generators are being retired and replaced with renewable generation that doesn’t operate at the same levels. This faster pace of transition has led to a shortage in generation capacity that’s available to meet the summer peak periods.
Fortunately, your Cooperative’s power supplier (SIPC) did not have to purchase any generation capacity in this auction due to having sufficient generation capacity that is either owned or under contract. Therefore, your Cooperative will not be incurring any additional generation capacity costs due to the most recent auction and no change in rates due to this auction. Some utilities and organizations that had to purchase additional generation capacity in the auction are announcing significant rate increases beginning this summer.
Although SIPC has sufficient generation capacity for the peak summer demand period in our service area, we are still at an increased risk for a shortage in generation capacity this summer due to MISO directives. As mentioned above, MISO manages and operates the electric grid in 15 midwestern states. If the Midwest region experiences an above normal heat wave during the peak summer period or there are unforeseen generator and transmission outages that occur, MISO could be forced to call on all consumers to conserve as much energy as possible and implement other emergency operations to protect the electric grid. In the worst-case scenario, MISO could call for temporary, controlled outages to prevent an uncontrolled, cascading electric grid outage.
As the electric generation industry continues to evolve in the future, it is vital that the industry, other stakeholders and consumers recognize the significance and importance of having sufficient generation capacity available to meet the peak demands of consumers. If the industry continues to retire fossil fuel generation prematurely, the risk of controlled outages and shortages in generation capacity will continue along with drastically higher generation capacity costs.
See you next month and as always, “We’ll keep the lights on for you.”