On Tuesday, November 23, Energy Choice Coalition executive director Robert Dillon joined Joshua Rhodes of IdeaSmiths and the University of Texas Austin, Landon Stevens of the Conservative Energy Network, Devin Hartman of the R Street Institute, and Travis Fisher of the Electricity Consumers Resource Council for an online discussion hosted by ConservAmerica on the new report on the environmental benefits of increasing competition in electricity markets. Check out the full video below.
The report – Assessment of the Emissions Performance of Wholesale Electricity Markets – compares the levels and intensity of carbon emission reductions in partially restructured electricity markets under the jurisdiction of Independent System Operators (ISOs) – regions with competitive wholesale power markets – to non-restructured markets with vertically-integrated, monopoly utilities.
Semi-restructured markets with ISOs have reduced their power sector CO2 emissions by about 35% from 2005 levels while non-ISO regions have reduced their power-sector CO2 emissions by about 27% over the same period.
Those ISO regions with more competitively owned generation, such as ISONE, NYISO, and PJM generally led with deeper CO2 emissions reductions, with 61%, 56%, and 41%, respectively.
ISO regions have seen lower overall electricity growth and have reduced their CO2 emissions intensity of electricity (tons/MWh) by about 39% from 2005 levels, where non-ISO regions have reduced their emissions intensity by about 32%.
ISO regions have seen stronger growth in distributed solar PV, increasing by about 214% versus non-ISO regions at 199%, since the U.S. Energy Information Administration began keeping track in 2014.
Overall, the analysis indicates that restructured wholesale markets with ISOs have reduced total carbon emissions and carbon emissions intensity on average faster than non-ISO regions since 2005. The analysis was conducted by Rhodes, Lynne Kiesling, Todd Davidson, and Michael Webber.
As Congress looks for viable and durable ways to hasten the energy transition, policymakers should consider the benefits of competitive markets and putting consumers first. Instead of subsidies that distort the market and force consumers to pay twice – once as taxpayers and again as ratepayers – competitive markets are, as this new report shows, better at driving environmental outcomes than monopolies.
One of the main reasons competitive electricity markets tend to accelerate the transition to clean energy is because they incentivize the lowest-cost sources of generation to be dispatched first. As a result, more expensive resources become uneconomical and don’t get dispatched as often. Roughly two decades ago, natural gas generation became competitive with coal-fired power plants, and over the past 10 years, wind and solar have become the most cost-effective sources of new generation. Consequently, coal plants have retired much faster in competitive markets than in traditional monopoly markets.
Further evidence of this phenomenon is that while only 67 percent of total utility-scale generation capacity is located in competitive markets, 80 percent of utility-scale renewable generation capacity is located in competitive markets. Even distributed solar has grown faster in competitive markets (214 percent) than other parts of the country (199 percent) since 2014.
Overall, emissions have fallen 35 percent in competitive markets as opposed to 27 percent in other parts of the country since 2005. Similarly, emissions intensity has fallen 39 percent in competitive markets as opposed to 32 percent in other parts of the country since 2005.
That said, there are factors that aren’t accounted for in this study, particularly the state and local policies in place in some competitive markets, particularly New England, New York, and California. States and cities in those markets have some of the most robust energy efficiency programs, while also supporting distributed generation, energy storage, and other technologies. The existence of these competitive markets help enable those policies to be implemented and make other policies more effective than they would be otherwise.
Competitive markets also allow for more complex pricing structures, including time-of-use rates and even real-time pricing. These structures incentivize customers to use energy when it is cheapest, which also strongly correlates with when it is cleanest. As a result, peak demand on the grid is reduced, thus reducing the need to invest in additional utility-scale generation while deferring transmission and distribution infrastructure upgrades.
In the future, the implementation of FERC 2222, which only applies to competitive markets, is going to accelerate the adoption of DERs, including electric vehicles, roof-top solar, batteries, and smart building technologies. It is likely that the growth of those technologies will be noticeably faster in competitive markets because of the savings and revenue that customers will get by permitting their utilities and third-party companies to utilize them to provide demand response, grid services, and other opportunities.
Some of the economic drivers of the effects of competitive markets in reducing emissions include:
Markets promote innovation and new technology adoption.
In general, the design of energy markets favors technologies like wind and solar that have near-zero marginal costs, which make them more likely to be dispatched, as compared to plants that have higher marginal costs.
Market designs can include environmental mechanisms to address externalities.
Markets better reflect consumer preferences, whereas under traditional utility regulation, regulators define the market and its products.
Download the full report here.