Utilities - April 30, 2021
Competitive Wholesale Markets Unlock Procurement Options—Will the Proposed Southeast Energy Exchange Market Do the Same?
The benefits of competitive wholesale markets to customers are generally boiled down to two simple words: cost and reliability. But ask any large buyer of clean energy, and you’ll hear a host of additional reasons why organized, competitive wholesale markets overseen by regional transmission organizations or independent system operators (RTOs/ISOs) make it easier to access clean energy resources. Unpacking what makes wholesale markets work for buyers also helps to explain why buyers have not enthusiastically endorsed the Southeast Energy Exchange Market (SEEM) proposal put forward by a handful of Southeastern utilities.
While there’s no single, simple answer why large buyers support RTO/ISO markets, there are a number of common threads including efficiency and cost savings, better integration of renewable energy, open market access, price transparency, and opportunities for newer technologies like energy storage and distributed energy resources to compete. Drawing on the observations of companies who have experience pursuing advanced energy both within and outside of RTO/ISO markets, it’s clear that RTO/ISO markets offer several important advantages:
- Access to power purchase agreements (PPAs) and virtual PPAs (VPPAs) for large-scale renewable energy projects. These deals depend on the competitive market entry, market liquidity, and price transparency that RTOs/ISOs enable.
- Renewable energy offerings in vertically integrated utility territories that leverage organized wholesale market structures. While utility programs do not rely on RTO/ISO participation, the presence of an RTO/ISO allows utilities to offer customers price-based, transparent programs.
- Flexible and customizable renewable energy offerings from non-utility suppliers in regions with competitive retail service. Retail competition, itself an option facilitated by wholesale market competition, has enticed service providers to develop a range of renewable energy products—ranging from tailored, customer-specific offerings to plug-and-go subscription programs.
- More cost-effective options to pursue distributed energy resources (DERs). The ability of these resources to provide value at both the retail and wholesale levels through wholesale market participation opens more cost-effective opportunities for customers to invest in DERs.
- More competitive and cost-effective integration of advanced energy technologies. RTO/ISO allow the transition to a cleaner grid to happen cost-effectively and reliably by fostering competition of supply and demand resources, facilitating coordinated regional transmission planning, providing access to transmission at a single rate, and better enforcing open access to the transmission system, all of which serve to enable market entry for cost-competitive advanced energy resources.
It follows logically that bringing organized wholesale markets to regions that don’t currently have them would expand opportunities for corporate procurement by enabling additional renewable and advanced energy contracting options for large customers, expanding opportunities for customer-sited DERs, and increasing advanced energy penetration on the grid.
It might seem safe, therefore, to assume that the Southeast Energy Exchange Market (SEEM) proposal put forward by southeastern utilities would be an instant winner with clean energy buyers, but the response has been much more tempered.
To understand why, it’s important to know what SEEM is and what it isn’t. SEEM is a proposal developed by utilities for utilities, with very little input from stakeholders along the way. The proposal would create a voluntary exchange market, allowing utilities with excess generating capacity to offer it up for purchase by utilities who are short of the generating capacity they need on a 15-minute basis, with prices determined by splitting the difference between buy offers and sell offers. These transactions would only happen when utilities voluntarily raise their hands to participate in the exchange, not whenever there is an imbalance in the system, and they would rely on excess transmission capacity that, while offered at no charge, has the lowest priority in use and can be canceled at any time.
SEEM clearly isn’t (and doesn’t claim to be) a full RTO/ISO market, nor even an energy imbalance market (EIM) like the one in operation in the west. It would not balance energy in real-time over a wide area, coordinate transmission planning, or provide open access to the transmission system at a single rate. These features are key to deliver the advantages that advanced energy buyers see in RTO/ISO markets.
The bigger question for buyers—and all customers in the Southeast—is whether SEEM can serve as a first step toward a more meaningful competitive market in the Southeast. SEEM itself is currently before the Federal Energy Regulatory Commission for approval, and buyers are represented by a joint filing put forward by Advanced Energy Economy, the Advanced Energy Buyers Group, the Renewable Energy Buyers Alliance, and the Solar Energy Industries Association that argues for a broader conversation about what the region wants from a competitive wholesale market. The potential benefits of building upon the baby step of SEEM are enormous: One recent study found that a competitive wholesale market in the southeast structured as an RTO could yield as much as $384 billion in consumer savings by 2040, reduce retail costs by 23%, and reduce emissions by 37% compared to 2018 levels without any additional policies or mandates.
For buyers interested in more wholesale competition, SEEM is a discussion worth following, as are legislative efforts in the West to move from an EIM to a full RTO. Progress won’t be immediate or easy, but moving to full RTOs in the west and southeast would unlock the enormous benefits buyers have seen from RTO/ISO markets in other regions.
For more information on Advanced Energy Economy, click here.
Caitlin Marquis is a director at Advanced Energy Economy, where she manages the policy engagement of the Advanced Energy Buyers Group, a coalition of leading companies that are working to expand their use of advanced energy. Marquis leads the Buyers Group’s efforts on both regulatory and legislative engagement at the state, federal, and regional levels. The Advanced Energy Buyers Group recently released a paper about RTO/ISO markets, Organized Wholesale Markets and Corporate Advanced Energy Procurement.
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