As we confront the challenge of how to reduce carbon emissions while continuing to provide reliable and affordable electricity, we must develop and embrace practical solutions that ensure reliability and retain public support. The best way to achieve those goals is to unleash competition. As the Electric Power Supply Association marks its 25th year of advocating for a fully competitive electric industry and expansion of competitive power markets, it seems right to revisit the genesis of electric competition and the benefits it delivers.
In April, we celebrated the anniversary of Order No. 888 a landmark decision issued in 1996 by the Federal Energy Regulatory Commission (FERC), which sought to “promote wholesale competition through open access non-discriminatory transmission services.” FERC noted its goal was to “remove impediments to competition in the wholesale bulk power marketplace and to bring more efficient, lower cost power to the nation’s electricity consumers.”
Since then, electric competition has delivered progress that even the initial champions of opening power markets may not have envisioned clearing a path for cost savings, efficiencies, greater reliability, significant decarbonization, and swift adoption of new, cleaner power generation technologies.
Reliability of the power system is the primary goal of all parts of the energy value chain. Indeed, 97% of U.S. adults recently said reliability is important to them, with 82% emphasizing it’s “very important.” Competitive power markets were designed to secure reliable power at the least cost. They do so by sending price signals for new resources to enter the market, as well as to retain resources needed to meet demand. With the introduction of competition in the 1990s, competitive generators immediately began to reduce power plant outages and invest in reliability-enhancing innovation. Furthermore, joining an organized market has led to improved reliability in states like Louisiana, which have a traditional utility structure (R Street Institute, 2021).
It’s important to note that all power generators are subject to mandatory standards imposed by the North American Electric Reliability Corporation. Following cold weather events in 2013-14, PJM Interconnection modified its market to provide weather preparation incentives for generators, which helped cut outages nearly in half during a similar 2017-18 weather event.
When multiple power generators and independent companies bid to provide reliable electricity at the lowest cost, customers ultimately enjoy better outcomes. Why? Because market signals provide incentives for power generators to improve operational performance and invest in new, more efficient technologies.
The data tell the story in every U.S. competitive power market, wholesale power prices have shown a downward trend over the past two decades.
• From 2008 to 2020, the 37 states with traditional utility or partial competition models saw power prices rise 20.7%, while the 14 jurisdictions (13 states and the District of Columbia) with retail electricity competition saw prices decline 0.3% (Pacific Research Institute, 2021).
• 41.7%: The drop in wholesale electricity costs in PJM Interconnection as of 2020, which at $21.40/MWh were the lowest prices of the competitive markets examined.
• 44.3%: The decrease in prices in the New England ISO as of 2020.
• 26%: The reduction in prices in the Lower Hudson Valley zone of the New York ISO as of 2020.
• Prices in the New York City zone of the New York ISO were 44.8% lower as of 2020.
• $3.2-$4 billion: Annual savings enjoyed by consumers in the PJM Interconnection footprint, which serves 65 million customers in 13 states and the District of Columbia.
• $3.2-3.9 billion: Regional savings delivered to Midwest electricity consumers in the Midcontinent Independent System Operator service area in 2019
Affordability is a key metric because it is a top priority of consumers. Polling shows that consumers are willing to support changes to the power supply that reduce emissions so long as it does not significantly impact their wallets. Markets allow new and cleaner technologies and resources to enter while allowing least-cost solutions to win out.
Emissions Reductions and Environmental Benefits
Along with encouraging power providers to deliver least-cost solutions, competition has accelerated emissions reductions and been a key driver for putting more clean energy technology on the grid. Power generation owners must operate efficiently to remain economically competitive while providing power capacity to system operators. Meanwhile, market signals keep these power generators responsive to price trends. The low cost of cleaner natural gas dramatically advanced coal plant retirements, and the increasingly low cost of renewable resources is driving more investment in wind and solar generation.
• 35%: The approximate average reduction in power sector CO2 emissions across ISO regions from 2005 levels; non-ISO regions have only reduced emissions by 27% over the same period.
• 39%: The drop in CO2 emissions across the PJM Interconnection footprint since 2005, encouraged by the investment in and entry of new, more efficient power generation technologies and renewables.
• 51%: The decrease in New York State’s CO2 emissions since the New York ISO launched competitive markets.
Innovation and Clean Energy Development
Competitive wholesale electricity markets improve access for new entrants and technologies, while lowering prices and keeping pressure on power generators to improve efficiency. Today, EPSA member companies own and are building some of the world’s largest battery storage projects, in addition to wind, solar, more efficient natural gas and other clean energy generation resources.
• 80%: The share of utility-scale renewable generation capacity deployed in ISO regions, despite only accounting for about 67% of all existing power plant capacity, of all types.
• 214%: The growth in distributed solar PV in ISO regions versus non-ISO regions at 199%, since the U.S. Energy Information Administration began keeping track in 2014.
Looking to the Future
As we look to the next 25 years, EPSA and our members are committed to building on the progress competitive electricity markets have enabled prioritizing reliability, bringing more affordable energy choices to consumers and America’s economy, and reducing carbon emissions and incentivizing innovation.
When it comes to policy choices and decisions surrounding our energy future, leaders should double down on competitive power markets not retreat to regressive, monopolistic, or less effective models. By unleashing competition and choice, America will be better positioned to solve some of the most complex challenges facing the nation and the world.
• Todd Snitchler is the president & CEO of the Electric Power Supply Association (EPSA). EPSA represents companies that own competitive power generation assets and advocates for policies that focus on achieving and maintaining well-functioning and properly regulated competitive wholesale electricity markets.