Travis Kavulla, NRG Energy
Everyone seems to agree that an abundance of renewables, in demand by consumers and government alike, will have significant consequences on the archetypical electricity market—a market that reflects the real-time value of supply which, putting additions to it aside, very few seriously question. These new challenges are caused by the fact that an abundant supply of zero- or negative-marginal-cost resources will drive prices frequently to zero while, at other times, their intermittency causes those prices to skyrocket. The responses to this phenomenon all too often begin with how to reform a market that gets the “right” supply: ensuring supply resources are paid enough money, are diversified or “innovative,” and are driving consistently toward decarbonization. But if changes in supply are driving the markets’ new dynamism in the first instance, should not the more immediate takeaway be what are buyers doing to take advantage of the new supply?
The upshot is that too little consideration is given to the incentives of customers and firms that act on behalf of customers in buying and serving them electricity. U.S. regulation does not uniformly face such firms with financial consequences around the economic efficiency of their supply of load—or at least we don’t in the many markets that are attended to by dominant utility monopolies and default entities for whom this inefficiency either is a wash or even profitable because of the perverse incentives latent in utility regulation. The conversation about wholesale market design and the evolving supply mix actually needs at its core a discussion of how a market can reform and replace these firms, thereby turning its load-serving entities into actors responsible for shaping, rationalizing, and absorbing the markets’ new dynamism through both its service to demand and its supply procurements. This conversation begins in considering whether and how competition between these retailers is working, especially an understanding of why it seems only to be especially working well in one U.S. market, namely ERCOT.