New NRDC Report: Lessons for Creating a Western Electricity Grid

An historic reorganization of the western electricity delivery system is underway. The sources of our electricity are changing rapidly, driven by shifting economics that include plunging natural gas prices, new state and federal policy goals, and the rise of renewable energy resources. Renewable generation sources have been shown capable of reliably powering increasing shares of our economy. And as large amounts of renewable power are added to the western grid, major changes in how it operates will be needed.  We need to modernize how we run the grid and make it as renewable-energy friendly as possible.

Regional transmission organizations (RTOs), or Independent System Operators (ISOs)—the terms are largely interchangeable—run large regional portions of the national electrical system across most of the country. They include the Midcontinent Independent System Operator (MISO) and PJM, the grid operator for the nation’s largest electricity market, stretching from the Mid-Atlantic states to the Midwest. Studies by these groups have shown that large levels of renewable energy can already be safely and reliably integrated into generation supplies without having to resort to large amounts of gas-fired generation to balance out variability due to fluctuations in the wind and sun.  A large system footprint, combined with closely coordinated and consolidated grid operations, can avoid the need for significant fossil-fueled generation. RTOs provide a model for how we might reorganize grid operations in the West. But as is typical in any fundamental transition, many people wedded to the old system fear change. Misrepresentations about the ISO experience are beginning to circulate, clouding the choices we need to make.   

As California studies expanding its state-based ISO into a regional system operator we thought a closer look at the RTO experience would be helpful to policy makers and the public. I have blogged on this topic before and now NRDC has produced a paper that examines issues related to renewable power integration and conventional power plant retirements as they apply to expanding CAISO’s footprint. We took a look at the track record of RTOs—good and bad—and made some recommendations regarding how a western RTO could be built to serve the West’s unique climate and energy needs. 

We concluded:

• A western RTO or Regional System Operator (RSO) would greatly facilitate efforts to transform the electricity sector in the region to a low-carbon energy delivery system.
• An RSO can help all western states more cost effectively comply with federal and state pollution and energy procurement mandates and goals by providing access to lower-cost renewable power from throughout the region.
• All RSOs (including CAISO) have been able to reliably integrate increasing amounts of renewable energy into their systems.
• Energy markets have led to a large number of conventional plant retirements in the Eastern Interconnection.
• Regional markets intrinsically favor renewable electricity generators that have zero fuel costs and very low marginal costs.
• A capacity market is not necessary in the Western Interconnection, which already has plenty of natural gas resources and is rich in diverse renewables that operate during different hours.
• RTO planning can lead to better identification of system needs, avoid overinvestment in infrastructure, better use the existing system, and better justify new infrastructure when it is needed. 

Based on these conclusions we recommend:

• Western state legislators and regulators should approve the consolidating and coordinating balancing areas in the western grid into an RTO/RSO to better manage and more efficiently integrate increasing amounts of renewable power.
• Authorities should approve expanding the existing successful ISO platform from CAISO to across the West. This will save resources and time and facilitate a more rapid system transformation. It builds on the already expanded ISO regional real-time market.
• A new RSO should avoid the establishment of a capacity market, which can perpetuate uneconomical generation. Resource adequacy will continue to be assured through competitive utility procurement under the supervision of state regulators and local utility boards.

Read the entire paper here. Decisions about whether to expand the California ISO to a regional entity could come as soon as this fall. Stay tuned.