WASHINGTON (May 30, 2017) – A wave of coal and potential nuclear retirements has prompted extensive political controversy over the future of “baseload” power plants and the effects such retirements could have on reliable and affordable electricity. In a new policy study, R Street Institute Electricity Policy Manager Devin Hartman finds that, while dependable and dispatchable power is essential to a reliable grid, such characteristics are not limited to conventional baseload plants.
“Utilities and competitive electricity markets should value the attributes of reliability, not how resources are classified, to ensure reliability is met at the lowest cost,” Hartman said. “The effects of public policy and recent decreases in the cost of natural gas, renewable energy and use-limited resources like energy storage all will require monopoly utilities and competitive markets take all attributes of reliability into account in resource planning and market design.”
Critics have levied that wholesale electricity markets undervalue baseload power, but Hartman finds no credible empirical evidence for systemic underpayment for the attributes associated with baseload, in particular. Pricing other resources more efficiently should increase real-time revenues for baseload plants. Improved scarcity pricing—even in areas with capacity markets—would result in a more accurate reflection of reliability services that would reward those resources that perform well, baseload and nonbaseload alike.
“Concern over baseload retirements often masks an underlying preference for certain fuel types, namely coal and nuclear. Criticism of baseload retirements often ignores that nonbaseload resources can meet baseload demand reliably… and that new dependable resources have replaced retiring generators,” writes Hartman. “Policymakers and regulators should be concerned with whether the economic paradigms driving power-plant investments are achieving system reliability at the least cost, not whether they reward a subset of politically preferred resources.”
R Street is a nonprofit, nonpartisan public policy research organization whose mission is to promote free markets and limited, effective government. It has headquarters in Washington, D.C. and five regional offices across the country. Its website is www.rstreet.org.