With changing dynamics of both supply and demand in the electricity industry, including low natural gas prices, flat electricity demand due to increased efficiency, and robust growth of cheap, clean renewables, the term “baseload”—which historically has been used to refer to large coal and nuclear plants—is now outdated. That’s the conclusion of new analysis released by The Brattle Group , a global economics consulting firm, which says grid planners and operators should be technology-neutral in finding the best energy resources to reliably meet the operational needs of the modern electricity system. (Here's a press release discussing the Report.)
Industry stakeholders should focus on defining, compensating, and planning around the operational needs of the power grid, as well as public policy goals and customer preferences, rather than applying anachronistic frameworks that group power plants according to whether or not they are “baseload,” “intermediate,” or “peaking.”
It’s all about grid services
The Brattle report, commissioned by NRDC, explains that no single technology or fuel type is needed to keep the lights on 24/7. Instead, a blend of several kinds of services describe what it takes to reliably deliver power to customers and capture all of the nuts and bolts of our complex electricity system (“the world’s largest machine”). Examples of such services include energy delivery, frequency regulation (holding electric current within a necessary specified band), ramping capacity, and emergency backup capability.
By focusing on these services rather than specific fuels or technologies, grid operators and planners can leverage and incentivize the full range of resources capable of meeting customer and public policy needs, such as reducing climate-changing pollution. Resources that can be combined to reliably serve customers include many different types of large power generators, including fossil fuel-fired units, nuclear plants, and variable renewable resources like wind and solar; smaller distributed generation units like rooftop solar located at or near utility customers; demand reductions from energy efficiency or “demand response,” which curtails energy use during periods when the grid is under the most stress; and emerging technologies like energy storage.
Flexibility should be prioritized
The Brattle report demonstrates how grid operators are reducing costs and more reliably serving customers by designing markets and planning procedures around more precise definitions of system needs. This focus on “flexibility”—the ability to deliver power and ramp up supply or reduce demand quickly in response to system fluctuations—improves reliability and reduces costs. Brattle extensively reviewed studies of grid operations and planning, all of which highlighted the value of emphasizing system flexibility. A recent study of California’s system found that as flexibility increases, reliability improves and both production costs and emissions decrease. Analysis of New Mexico grid operations reached a very similar conclusion, finding that over time, operational flexibility will be increasingly important in avoiding future blackouts.
A host of studies now confirm that high levels of renewables like wind and solar can be reliably integrated into the system, offering valuable grid services. Brattle’s report supports this conclusion, noting that “[r]enewables integration efforts can stimulate innovations that bring additional system benefits that are only achievable by moving past the status quo.” Additionally, integrating services across a larger geographic footprint is more cost effective (a larger integrated Western Power Grid, for example, would help reduce costs and improve reliability across the region). Lastly, study after study has concluded that no particular level of round-the-clock “baseload” supply is necessary. A new report from the independent consulting firm Analysis Group, released last week, reached the same conclusion, affirming that baseload is an outdated term and that “reliability is a technology-neutral concept.”
Energy Secretary perpetuates “baseload” myth
Unfortunately, Energy Secretary Rick Perry seems to not yet be fully aware of the transforming grid and modern planning and operating practices. On April 14, he released a memo ordering a hurried “study” of electricity markets and reliability. The memo was tilted heavily toward the idea of preserving “baseload power,” declaring that baseload “is necessary to a well-functioning electric grid.” In recent Congressional testimony, he doubled down on these unsupported talking points. But as Brattle points out, “‘baseload’ . . . is not equivalent to the more clearly, technically defined concept of reliability.”
As Brattle outlines, the term “baseload” is often inappropriately conflated with operational services, and those services can actually be provided by many different types of resources beyond so-called “baseload.” In fact, coal and nuclear units are limited in their flexibility because they tend to have high start-up and shut-down costs as well as operational limitations, so they generally cannot provide the full suite of grid services offered by more nimble resources like energy storage.
While nuclear and coal do support system reliability, this value is not unique. Brattle’s conclusion is that grid operators should let supply compete in a technology-neutral manner to provide grid reliability while meeting policy goals like greenhouse gas abatement. While Perry has sometimes indicated agreement with the basic principle of technological neutrality (he said in his recent testimony, for example that he was “[n]ot trying to pick winners and losers, but let the facts fall where they may”), following through on this principle would mean letting go of the urge to promote baseload.
Our hope is that by working with the knowledgeable staff at the Department of Energy, Secretary Perry and his team focus on the services the system needs to operate efficiently, cost-effectively, and reliably. Analysis from experts like the Brattle Group and the Analysis Group, hopefully coupled with productive contributions to the discussion from the Department of Energy, will reinforce the initiatives of grid planners and operators as they update their practices for a modernized, low-carbon electricity system.
A modern electricity system
The electricity landscape is rapidly changing. In the past, coal and nuclear were perceived (often incorrectly) to be the cheapest resources, and the prior electricity system structure relied upon large central generating units without valuing flexibility. Today, declining renewables costs, flat electricity demand due to more efficient energy use, low natural gas prices, and stronger climate and public health protections are all driving an irreversible shift in the underlying economics of the electricity industry. Taken together, these changes are placing significant financial pressure on coal and nuclear units across the country. At the same time, the operating characteristics of coal and nuclear units limit their ability to provide increasingly valued flexibility services.
As a result, the grid is no longer being designed around the concept of “baseload.” Instead, grid planners are focusing on system needs, while also accounting for public policy goals and customer preferences, to deliver the lowest cost mix of resources. This framework rewards “baseload” plants only where they are truly needed, but prioritizes other resources when it is more cost-effective to do so.
Going forward, market and planning rules will need to continue to keep up with the pace of change in the electricity landscape to more precisely meet system needs, and avoid acting based on misplaced desires to value resources solely on the basis of their status as “baseload.”