News that wind energy may have played a role in an electrical blackout experienced last week in South Australia has reinvigorated the question of whether renewable-energy mandates decrease system reliability.

To be clear, detailed analysis of just what happened during the severe weather event is still pending and it remains unclear the degree to which various factors contributed to the blackout. But that hasn’t stopped fired-up renewables opponents from blaming the technology preemptively.

A preliminary report from the Australian Energy Market Operator noted there were a series of transmission-system failures and generation reduction at six windfarms, but not at thermal generation plants. At the time, the electric system was highly dependent on wind, which accounted for 48 percent of total generation immediately before the event. While this would appear to implicate wind, the report notes that “additional analysis is required to determine the reasons … before any conclusions can be drawn.”

Opponents of wind power immediately seized the opportunity. The debate spilled into the policy arena, with criticisms and defenses of the South Australian renewable energy target of 50 percent by 2025. Critics raised some fair concerns, but their rush to judgment on appropriate long-term policy is premature and incomplete.

Certain renewable-energy technologies, namely wind and solar, are weather-dependent. This makes their output variable and makes it difficult for grid operators to balance supply and demand instantaneously – a necessity, given limited storage abilities. Operators can maintain reliability if they are able to reduce renewable generation during oversupply situations and have sufficient nonrenewable generation to pick up the slack during periods when weather limits wind and solar output.

Electricity systems with higher levels of variable renewables are not inherently less reliable, but policies that artificially push renewables onto systems can undermine reliability. Grid operators conduct long-term resource planning to ensure reliable grid operations. Monopoly utilities employ least-cost planning, while grid operators who oversee competitive markets rely on prices to signal reliable investments.

Either approach, done correctly, results in sufficient resources to operate the grid reliably. These planning processes increasingly account for the need to incorporate higher penetration levels of renewables, with competitive markets more capable of doing that in a cost-effective way.

But policies like technology mandates and power-plant bailouts, which circumvent or interfere with planning processes, can undermine grid reliability and usually increase total costs. As a result, conditions can change more rapidly than planning processes can adjust. When policies artificially accelerate the deployment of renewables, they exacerbate the reliability consequences of, for example, underestimating the amount of flexible-generation capability (that is, the ability to turn output on and off and adjust quickly) needed to integrate those renewables.

Market areas where monopoly utilities are subject to renewable-output requirements are especially vulnerable, as the monopolists pass costs directly through to customers and ignore market signals that encourage reliable operation. For example, they may operate renewable facilities even when prices are negative in order to meet the renewable-energy procurement target.

Here in the United States, renewable portfolio standards currently are driving high wind growth in the Midwest and a solar boom in California. The grid operators in these areas have had to institute various market reforms to better value the resource flexibility they need to integrate renewables. This highlights that organic renewables growth in competitive environments can maintain reliability cost-effectively. The problem is that mandates, especially on monopolies, drive renewables deployment and operation that disregard market signals.

The rise of unconventional technologies necessitates further reforms in wholesale electricity markets to ensure fair competition, while maintaining reliability. This requires policies that anchor competition, which boosts investor confidence. By contrast, mandates forego competition, stifle innovation and have the potential to leave grid operators handcuffed.

Australia’s event should serve notice to domestic renewables advocates that a political backlash can arrive swiftly, regardless of its merits. That makes it all the more important to ensure renewables growth is done in a reliable, market-based manner. Specifically, it should push policymakers across the spectrum to note that government engineering of the fuel mix is not sound policy. Ultimately, the constructive path is organic renewables growth facilitated by enhanced competition and improved market design.

Image by Enrique Ramos

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