Current policy could lead to less diverse grid, higher prices, study says

The current policy-driven energy market could create a less diverse grid, increased price fluctuations and higher price, a new study from IHS Market said.

The report, titled Ensuring Resilient and Efficient Electricity Generation: The Value of the Current Diverse U.S. Power Supply Portfolio, said that some U.S. power systems could see only insignificant contributions from nuclear and coal and less energy from hydroelectric. The majority of power comes from natural gas, wind and solar.

The study compared the actual performance of the grid between 2014 and 2016 with a less efficient diversity scenario over the same time period.

The current, diversified grid reduces electricity costs by approximately $114 billion each year, decreases the average retail price of electricity by 27 percent and lowers the variability of monthly consumer electricity bills by 22 percent.

The less efficient diversity portfolio would result in a $158 billion in U.S. gross domestic product (GDP), a loss of one million jobs and $845 less real disposable income each year per household, according to the study.

“It is easy to take the cost-effective diversity of the current U.S. electric supply portfolio for granted,” Lawrence Makovich, IHS Markit chief power strategist and the study’s lead author, said. “But a comparison of the two cases in our analysis shows that increasing exposure to the challenge of managing the misalignment of intermittent generation with consumer demands—plus the price volatility and deliverability constraints of natural gas—reduces benefits to households and reduces the competitive position of U.S. businesses in the global marketplace.”

The study also found that a reduction in diversity, particularly a loss of nuclear generation, would result in near constant carbon dioxide emission levels.

“As this insightful new study notes, public policies can create unintended market distortions by suppressing the power prices for all of the generators operating in those markets,” NEI Senior Director of Policy Development Matt Crozat said. “If plants close, this ultimately results in higher emissions, higher prices, and less reliability. New York and Illinois have already acted to prevent such closures and we urge other states and jurisdictions to act before it is too late.”