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Leaving Regional Power Market is ‘No Quick Fix’ for States That Support Clean Energy

Posted by Monique Hanis on Sep 3, 2020

In new background paper, AEE argues that the “Fixed Resource Requirement” should not be first choice for states seeking to defend their clean energy commitments against FERC order they see as undermining state policies

WASHINGTON, D.C., September 3, 2020 – Today, national business group Advanced Energy Economy (AEE) released a background paper arguing that pulling out of regional capacity markets should be a last resort for states to defend their energy choices. In “No Quick Fix: Why Fixed Resource Requirement is Not the Best Way for States to Protect Their Energy Choices,” AEE details the ways that the so-called Fixed Resource Requirement (FRR), which some states are exploring in response to an order by the Federal Energy Regulatory Commission (FERC) they see as undermining their policy commitments to clean energy, carries with it risks and costs, and that they would be better off prioritizing other options which could bring them closer to achieving their clean energy goals. 

“The FRR option has received significant attention from states and clean energy advocates because it appears to provide a quick and immediate solution to the problems created by the FERC order. But in reality, FRR is not a clear or simple path and it presents many new risks for clean energy developers and buyers,” said Jeff Dennis, Managing Director and General Counsel at AEE.

In December 2019, the Federal Energy Regulatory Commission (FERC) issued a controversial decision, called the Minimum Offer Price Rule,* directing the nation’s largest regional grid operator, PJM Interconnection, to apply an administratively set minimum price to any new (and some existing) resources eligible to receive financial support from state programs that participate in PJM’s annual capacity auction. That requirement could potentially keep new renewable energy, energy efficiency, energy storage, and demand resources from clearing the auction for capacity payments, making these resources more expensive for states that have chosen to support them, and forcing ratepayers to pay for additional capacity that’s not needed for reliability if those resources are in place. As a result, some states have begun to consider directing utilities to pull out of PJM’s regional capacity market altogether, through the FRR mechanism. Under FRR, states themselves would take responsibility for ensuring adequate capacity to meet electricity demand.  

While states that have made commitments to clean energy should consider all possible options to avoid the negative impacts of the FERC-imposed rule, advanced energy companies are concerned that FRR could have unintended consequences on competition, access to the most cost-effective advanced energy resources across the region, and ultimately the ability to finance and develop new clean energy resources needed to meet state goals. Similarly, large buyers of advanced energy resources, such as commercial and industrial customers with ambitious sustainability goals, fear that FRR will undermine their ability to access cost-effective renewable energy projects across the PJM region, and increase costs to consumers generally.  

In “No Quick Fix,” AEE argues that states should pursue other potential options, and consider FRR only as a last resort. AEE offers three steps states should take now:

  1. Engage with PJM and other regional grid operators to reform their markets and align them with state policy goals, 
  2. Pursue new or expanded carbon pricing mechanisms, and 
  3. Expand direct environmental regulation of polluting power sources. 

“Rather than rush into an FRR-based alternative, states should use this time to advocate for reforms that would prepare power markets for a future where advanced energy resources like wind, solar, energy storage, demand response, energy efficiency, and distributed energy technologies, are the majority of resources on the system. States should seek to continue to capitalize on the benefits of competitive regional wholesale markets, and consider FRR only as a last resort,” said Dennis 

*AEE offers free, complimentary access to its PowerSuite online platform tracking all federal and state energy legislation and regulatory filings to credentialed media. Sign up for a free trial and contact Monique Hanis (mhanis@aee.net) for permanent access.

About Advanced Energy Economy
Advanced Energy Economy (AEE) is a national association of businesses that are making the energy we use secure, clean, and affordable. Advanced energy encompasses a broad range of products and services that constitute the best available technologies for meeting energy needs today and tomorrow. AEE’s mission is to transform public policy to enable rapid growth of advanced energy businesses. Engaged at the federal level and in more than a dozen states around the country, including New York, AEE represents more than 100 companies in the $238 billion U.S. advanced energy industry, which employs 3.6 million U.S. workers. Learn more at www.aee.net, track the latest news @AEEnet.

Topics: Press Releases