Alok Garg

The Hidden Costs of Thermal Plant Retirements: Grid Impacts and Consumer Consequences The accelerating retirement of thermal power plants, particularly nuclear and coal facilities, represents one of the most significant transformations in the U.S. electricity sector's history. While these retirements often appear beneficial from environmental and short-term economic perspectives, they create complex challenges for grid stability, reliability, and consumer costs. This article examines the comprehensive impacts of this transformation. Scale of Retirements and Current Trajectory: The pace of thermal plant retirements has reached unprecedented levels: Over 100 GW of coal capacity retired between 2010-2023 , while another 40 GW of coal retirements have been announced through 2030, along with 12 nuclear units retired since 2013. Multiple nuclear plants face economic pressure despite life extensions, and nearly 25% of existing thermal capacity is expected to retire by 2032. Geographic Concentration Retirements cluster in specific regions, creating localized challenges: PJM faces 40 GW of potential thermal retirements by 2030, while MISO projects 30 GW of coal retirements in the next decade. The Eastern seaboard is seeing concentrated nuclear closures and coal-heavy regions are experiencing rapid transformation. Rural areas have been disproportionately affected. Critical System Impacts and Grid Stability Effects: Thermal plant retirements affect fundamental grid stability mechanisms: such as 1. Frequency Response: the loss of mechanical inertia from rotating generators and reduced natural frequency stability. 2. Voltage Support: reduction in steady-state voltage control and decreased reactive power resources have weakened the system's strength. So, there are increased voltage stability risks and higher remedial action costs. 3. System Restoration: fewer black start capable units have reduced restoration options, resulting in longer potential recovery times and higher black start service costs. Capacity and Resource Adequacy: The loss of firm capacity presents several challenges: 1. It reduces weather-independent generation and fuel security, increasing reliance on just-in-time resources like gas pipelines to manage the intermittency of solar and wind energy. 2. reliability metrics show declining reserve margins, higher loss-of-load probability, and more frequent emergency operations, diminishing operational flexibility and increasing vulnerability to weather impacts. The Economic Impacts of Thermal Plant Retirements include: 1. Replacement Costs: new power generation infrastructure, grid expansion, and storage systems. 2. Market Impacts: higher capacity prices, increased energy price volatility, rising ancillary service costs, with more scarcity pricing and hedging expenses.

Electricity Capacity Market distortions: PJM George Banks highlights significant issues within electricity markets and the grid. His article "Market Flaws & Distortions in Competitive Electricity Markets" sheds light on the limitations and distortions in electricity capacity auctions. Mr. Banks has raised some crucial questions: Is it appropriate to have a separate non-market payment for baseload power generation? Should capacity payments be contingent on specific beneficial attributes such as on-site fuel? Do capacity markets, like the one in the PJM RTO, require a longer time horizon than three years? In 2013, the Center for Strategic and International Studies [CSIS] warned that the US civil nuclear plant fleet was likely to contract sharply by 20% between 2014 and 2030, absent a substantial policy shift at federal and state levels. And In 2013, PJM [an RTO] voiced serious concerns about the retirement of coal and nuclear plants. 40 GW of capacity was set to be retired, primarily nuclear and coal plants. Their concern was that nuclear plants provide electricity that cannot be easily replaced. Key reasons to keep nuclear plants running are : -Stability and reliability to the grid. -Closure makes it difficult for a state to adhere to emissions requirements. -Nuclear power have the highest operating rates, ranging from 85% to 95% of capacity, the most efficient source of clean energy capable of functioning in all weather conditions. Mr. Banks comparing capacity payments to "insurance premiums" for power generators, and then the state utility commissions incorporates the 'capacity premium' into rates. He highlighted a concerning trend from the 2013 PJM auctions: reliance on less dependable energy sources, renewables, imported electricity, and demand response programs, had tripled since 2009 [to 2013]. George emphasized the critical importance of a reliable baseload generation for grid reliability, but noted that PJM's capacity market [payment] was not adequately compensating for the fixed costs of operating competitive baseload plants, posing a threat to their economic viability. He argued that these payments were not sufficient to encourage the building of new power plants. My take # 1: This report explains PJM's recent capacity market auction, paying $14.7 billion for capacity in 2025/6, up from $2.2 billion. My question is: How will other RTOs avoid the same fate of overreliance upon renewables and the retirement of baseload power plants? My take # 2: If capacity markets were functioning correctly, why aren't these power generating plants already built and running? Also, why not allow baseload power plants their own auctions, for kilowatts and capacity? FYI: PJM currently faces 58 GW of retirement of thermal power plants, primarily nuclear and coal, by 2030, without replacement capacity. PJM has 196 GW of electricity generation capacity in 2024. https://loom.ly/jwlHqSc. Source: George Banks article link:https://loom.ly/xEN7EA8

Capacity pricing in auction markets ensures enough electricity generation capacity to meet future demand. This process is critical for maintaining grid reliability and preventing shortages. Here's how it typically works: 1. Market Structure- These are separate from energy markets [the market for kWhs] and are specifically designed to procure capacity from generators to ensure enough supply to meet forecasted demand. 2. Participants: Various entities participate in capacity auctions, including traditional power plants, renewable energy sources, demand response providers, and energy storage systems. 3. Bidding: The auction process involves participants submitting bids for the capacity they can provide and the price they are willing to offer. Bids can vary based on operational costs, technology type, and expected availability. 4. Clearing: The auction process involves a clearing mechanism where submitted bids are matched with forecasted demand to procure enough capacity at the lowest cost and meet reliability. 5. Price Determination- Clearing Price: The capacity auction determines a clearing price paid to all successful bidders. This price is usually set by the highest accepted bid to meet the required capacity. All cleared capacity resources receive this price, regardless of their bids. 6. Market Signals: The clearing price reflects the market's assessment of the Capacity value at that time. Higher prices can signal a need for additional investment in generation capacity or demand response resources, while lower prices may indicate a capacity surplus. 7. Obligation: When awarded capacity in an auction, participants commit to providing it when called upon, especially during peak demand periods or system emergencies. This commitment is usually for a specified period, such as a year or a multi-year term. 8. Penalties: To ensure reliability, generators may be penalized for failing to deliver the committed capacity when needed. This incentivizes participants to maintain their resources and be available when required. 9. Types. Base Load Capacity is a Resource for consistent and reliable output over long periods. Peaking Capacity is used during peak demand and may only operate occasionally. Demand Response Programs allow consumers to reduce electricity usage during peak periods for compensation. 10. Long-Term Planning: Capacity markets often utilize forward auctions, allowing capacity procurement well before delivery. This helps secure investments in new-generation resources based on anticipated future demand. 11. Market Variability: Capacity pricing mechanisms vary significantly between regions and market structures. Some markets may have more robust capacity pricing mechanisms influenced by local regulations, resource availability, and market designs. 12. Capacity auction markets benefit by ensuring enough capacity to meet demand, enhancing grid reliability, providing clear investment signals, and promoting cost efficiency.

Capacity pricing in auction markets ensures enough electricity generation capacity to meet future demand. This process is critical for maintaining grid reliability and preventing shortages. Here's how it typically works: 1. Market Structure- These are separate from energy markets [the market for kWhs] and are specifically designed to procure capacity from generators to ensure enough supply to meet forecasted demand. 2. Participants: Various entities participate in capacity auctions, including traditional power plants, renewable energy sources, demand response providers, and energy storage systems. 3. Bidding: The auction process involves participants submitting bids for the capacity they can provide and the price they are willing to offer. Bids can vary based on operational costs, technology type, and expected availability. 4. Clearing: The auction process involves a clearing mechanism where submitted bids are matched with forecasted demand to procure enough capacity at the lowest cost and meet reliability. 5. Price Determination- Clearing Price: The capacity auction determines a clearing price paid to all successful bidders. This price is usually set by the highest accepted bid to meet the required capacity. All cleared capacity resources receive this price, regardless of their bids. 6. Market Signals: The clearing price reflects the market's assessment of the Capacity value at that time. Higher prices can signal a need for additional investment in generation capacity or demand response resources, while lower prices may indicate a capacity surplus. 7. Obligation: When awarded capacity in an auction, participants commit to providing it when called upon, especially during peak demand periods or system emergencies. This commitment is usually for a specified period, such as a year or a multi-year term. 8. Penalties: To ensure reliability, generators may be penalized for failing to deliver the committed capacity when needed. This incentivizes participants to maintain their resources and be available when required. 9. Types. Base Load Capacity is a Resource for consistent and reliable output over long periods. Peaking Capacity is used during peak demand and may only operate occasionally. Demand Response Programs allow consumers to reduce electricity usage during peak periods for compensation. 10. Long-Term Planning: Capacity markets often utilize forward auctions, allowing capacity procurement well before delivery. This helps secure investments in new-generation resources based on anticipated future demand. 11. Market Variability: Capacity pricing mechanisms vary significantly between regions and market structures. Some markets may have more robust capacity pricing mechanisms influenced by local regulations, resource availability, and market designs. 12. Capacity auction markets benefit by ensuring enough capacity to meet demand, enhancing grid reliability, providing clear investment signals, and promoting cost efficiency.

Capacity pricing in auction markets ensures enough electricity generation capacity to meet future demand. This process is critical for maintaining grid reliability and preventing shortages. Here's how it typically works: 1. Market Structure- These are separate from energy markets [the market for kWhs] and are specifically designed to procure capacity from generators to ensure enough supply to meet forecasted demand. 2. Participants: Various entities participate in capacity auctions, including traditional power plants, renewable energy sources, demand response providers, and energy storage systems. 3. Bidding: The auction process involves participants submitting bids for the capacity they can provide and the price they are willing to offer. Bids can vary based on operational costs, technology type, and expected availability. 4. Clearing: The auction process involves a clearing mechanism where submitted bids are matched with forecasted demand to procure enough capacity at the lowest cost and meet reliability. 5. Price Determination- Clearing Price: The capacity auction determines a clearing price paid to all successful bidders. This price is usually set by the highest accepted bid to meet the required capacity. All cleared capacity resources receive this price, regardless of their bids. 6. Market Signals: The clearing price reflects the market's assessment of the Capacity value at that time. Higher prices can signal a need for additional investment in generation capacity or demand response resources, while lower prices may indicate a capacity surplus. 7. Obligation: When awarded capacity in an auction, participants commit to providing it when called upon, especially during peak demand periods or system emergencies. This commitment is usually for a specified period, such as a year or a multi-year term. 8. Penalties: To ensure reliability, generators may be penalized for failing to deliver the committed capacity when needed. This incentivizes participants to maintain their resources and be available when required. 9. Types. Base Load Capacity is a Resource for consistent and reliable output over long periods. Peaking Capacity is used during peak demand and may only operate occasionally. Demand Response Programs allow consumers to reduce electricity usage during peak periods for compensation. 10. Long-Term Planning: Capacity markets often utilize forward auctions, allowing capacity procurement well before delivery. This helps secure investments in new-generation resources based on anticipated future demand. 11. Market Variability: Capacity pricing mechanisms vary significantly between regions and market structures. Some markets may have more robust capacity pricing mechanisms influenced by local regulations, resource availability, and market designs. 12. Capacity auction markets benefit by ensuring enough capacity to meet demand, enhancing grid reliability, providing clear investment signals, and promoting cost efficiency.

Capacity pricing in auction markets ensures enough electricity generation capacity to meet future demand. This process is critical for maintaining grid reliability and preventing shortages. Here's how it typically works: 1. Market Structure- These are separate from energy markets [the market for kWhs] and are specifically designed to procure capacity from generators to ensure enough supply to meet forecasted demand. 2. Participants: Various entities participate in capacity auctions, including traditional power plants, renewable energy sources, demand response providers, and energy storage systems. 3. Bidding: The auction process involves participants submitting bids for the capacity they can provide and the price they are willing to offer. Bids can vary based on operational costs, technology type, and expected availability. 4. Clearing: The auction process involves a clearing mechanism where submitted bids are matched with forecasted demand to procure enough capacity at the lowest cost and meet reliability. 5. Price Determination- Clearing Price: The capacity auction determines a clearing price paid to all successful bidders. This price is usually set by the highest accepted bid to meet the required capacity. All cleared capacity resources receive this price, regardless of their bids. 6. Market Signals: The clearing price reflects the market's assessment of the Capacity value at that time. Higher prices can signal a need for additional investment in generation capacity or demand response resources, while lower prices may indicate a capacity surplus. 7. Obligation: When awarded capacity in an auction, participants commit to providing it when called upon, especially during peak demand periods or system emergencies. This commitment is usually for a specified period, such as a year or a multi-year term. 8. Penalties: To ensure reliability, generators may be penalized for failing to deliver the committed capacity when needed. This incentivizes participants to maintain their resources and be available when required. 9. Types. Base Load Capacity is a Resource for consistent and reliable output over long periods. Peaking Capacity is used during peak demand and may only operate occasionally. Demand Response Programs allow consumers to reduce electricity usage during peak periods for compensation. 10. Long-Term Planning: Capacity markets often utilize forward auctions, allowing capacity procurement well before delivery. This helps secure investments in new-generation resources based on anticipated future demand. 11. Market Variability: Capacity pricing mechanisms vary significantly between regions and market structures. Some markets may have more robust capacity pricing mechanisms influenced by local regulations, resource availability, and market designs. 12. Capacity auction markets benefit by ensuring enough capacity to meet demand, enhancing grid reliability, providing clear investment signals, and promoting cost efficiency.

Here's a summary and quote of the key points from the article about PJM's proposal to end energy efficiency capacity payments: 1. PJM thinks that energy efficiency payments are duplicative. PJM is set to pay $144 million in capacity payments for energy efficiency resources in the 2025/6 year. About 89% of the payments for the current delivery year are going to non-utility energy efficiency providers, according to a PJM presentation on its proposal. 2. PJM has made capacity payments for energy efficiency resources since 2009, but they are no longer needed, according to the grid operator. 3. PJM Interconnection asked the Federal Energy Regulatory Commission (FERC) to allow it to stop including energy efficiency resources in its capacity auctions. 4. PJM argues there's no evidence that capacity market payments directly encourage energy efficiency projects. 5. The grid operator states that consumers already benefit from reduced capacity costs through lower peak load obligations resulting from energy efficiency measures. 6. PJM's independent market monitor, Monitoring Analytics, has long advocated for this change. 7. The proposal was approved by PJM stakeholders last month. 8. If approved by FERC, the change would take effect before PJM's next capacity auction on December 4, 2024. 9. The proposal would resolve pending complaints at FERC by the market monitor and a group of state ratepayer advocates. 10. Some organizations, including state ratepayer advocate offices and certain energy companies, oppose the proposal.​​​​​​​​​​​​​​​​ Link to article: https://loom.ly/gKdB8Q0

Here's a summary and quote of the key points from the article about PJM's proposal to end energy efficiency capacity payments: 1. PJM thinks that energy efficiency payments are duplicative. PJM is set to pay $144 million in capacity payments for energy efficiency resources in the 2025/6 year. About 89% of the payments for the current delivery year are going to non-utility energy efficiency providers, according to a PJM presentation on its proposal. 2. PJM has made capacity payments for energy efficiency resources since 2009, but they are no longer needed, according to the grid operator. 3. PJM Interconnection asked the Federal Energy Regulatory Commission (FERC) to allow it to stop including energy efficiency resources in its capacity auctions. 4. PJM argues there's no evidence that capacity market payments directly encourage energy efficiency projects. 5. The grid operator states that consumers already benefit from reduced capacity costs through lower peak load obligations resulting from energy efficiency measures. 6. PJM's independent market monitor, Monitoring Analytics, has long advocated for this change. 7. The proposal was approved by PJM stakeholders last month. 8. If approved by FERC, the change would take effect before PJM's next capacity auction on December 4, 2024. 9. The proposal would resolve pending complaints at FERC by the market monitor and a group of state ratepayer advocates. 10. Some organizations, including state ratepayer advocate offices and certain energy companies, oppose the proposal.​​​​​​​​​​​​​​​​ Link to article: https://loom.ly/gKdB8Q0