UT Energy Institute Symposium: Germany and Texas: Energy Twins?

Germany and Texas, so different in so many ways, have some surprising similarities when it comes to their electricity systems. These similarities and differences will be explored at a symposium called "Germany and Texas:  Energy Twins?" at the AT&T Executive Education and Conference Center on the University of Texas at Austin campus on September 2.

Policy makers in both Texas and Germany believe strongly in competitive markets and have largely deregulated their power industries.  Both regions have a large and growing amount of renewable energy, especially wind and solar, and are likely to see much more in the future – in Germany, driven by strong policies; in Texas, driven by abundant natural resources.

And in both places, the focus on competition has led to “energy-only” wholesale markets, where generators compete to sell their juice on daily and hourly markets.  Unlike other states and countries, they do not get long-term payments to be ready to provide power as needed, called a “capacity” payment.

These factors (and others) have led to very low wholesale prices in both Germany and Texas. Low prices are driving incumbent utilities toward bankruptcy, and shuttering power plants.

In Texas the result was a contentious debate about capacity markets.  While some argued that prices were too low, and would result in power shortages in coming years, others maintained it was just market forces at work. In the end, the state utility commission decided the market was “healthy” and made only minor fixes.

In Germany, the debate is just heating up.  The ongoing growth of wind and solar is pushing conventional technologies out of the market, yet those power plants are needed for when the wind doesn’t blow and the sun doesn’t shine.

To inform the debate, a delegation of German energy officials and experts is touring the United States to study market design issues, visiting Texas, the PJM Interconnection, and Washington, DC, in the first week of September. To welcome them, and give a full airing of the issues and their specific challenges, the University of Texas Energy Institute is convening a public symposium, with support from the Heinrich Böll Foundation, the Cynthia and George Mitchell Foundation, and CleanTX.

Oliver Krischer, a member of the German parliament, and a presenter at the symposium, said, “Germany has very strong energy and climate goals, including getting to 80 percent renewable energy by 2050.  As wind and solar become more mature and cost effective technologies, we are entering a new phase in our energy transition, known as the Energiewende.  The future will hinge on having an efficient, competitive, and cost effective market design that will make the transition as smooth as possible.”

University of Texas professor Michael Webber, Deputy Director of the UT Energy Institute and Co-Director of the ATI Clean Energy Incubator, will also present at the symposium. “These fundamental issues of market design are universal and will have a profound impact on the growth of renewables,” he said.  “Texas and Germany have a lot to learn from each other.”

The symposium will also feature: 

• Dr. Felix Matthes:  Research Coordinator for Energy & Climate Policy, Öko-Institut (Institute for Applied Ecology), Berlin
• Dr. Christoph Maurer:  Managing Director, Consentec GmbH, Aachen
• Walter Reid:  The Wind Coalition, Austin
• Phillip Oldham:  Partner, Thompson & Knight, Austin
• John Fainter:  Association of Electric Companies of Texas, Austin

Event website:  https://germanpower.splashthat.com
Time and location:
September 2, 2014
2:00—5:00 PM

AT&T Executive Education And Conference Center, Room 203
1900 University Aveue
Austin, Texas  78705

Contact:  Bentham Paulos, 510-912-3001, ben@paulosanalysis.com

A Market for Policy

This week I've been studying up on the PJM Interconnect, the world's largest organized power market, serving 61 million consumers in 13 eastern US states.

PJM is also notable for featuring a capacity market, and for fostering more demand response than any other market.

A capacity market pays generators and demand response suppliers to provide capacity -- that is, the ability to meet demand at all times.  In other markets, like Texas and Germany, power providers are paid only for the energy they sell, the megawatt-hours, and not for the ability to produce those megawatt-hours when needed.

Demand response is an old idea that is getting supercharged in the microchip era -- grid operators controlling some power demand and turning it down when needed.  Utilities have been doing this for decades with air conditioners, water heaters, and large factories.  When supplies were tight or very expensive, they would call (on the phone) the factory manager and ask them to throttle back.  Or they would send out radio signals to hundreds of air conditioners, cycling them off to cut demand.

Now, with wireless connectivity and smart controls in all kinds of devices, companies can control demand with increasing sophistication, and pass the savings on to customers.  What used to be "curtailment" is now "demand response."

But both capacity markets and demand response are still evolving in PJM.

This week I reported for Greentech Media that PJM is starting a process to tighten up what it means to be a capacity provider.  In the "polar vortex" of last January, 20 percent of the power plants in PJM were missing in action.  A number of them were gas-fired plants who were saving a few bucks by not having firm access to fuel.  As furnaces cranked up, some power plants were at the back of the pipeline, so to speak, and couldn't run.

Coal and nuclear advocates spun this to say that only traditional, big thermal power plants were "reliable."  But reliability is really the sum of all the parts, not the feature of a single power plant.  Nuclear plants are reliable until, suddenly, they aren't.  PJM has yet to come out with their reforms, but they are likely to be practical and mundane, like so much RTO policy.

Which brings me to the other reform PJM got approved recently, in the way demand response works.  PJM was unhappy that demand response resources couldn’t be activated unless they called an emergency and gave two hours notice.  They got approval in May to change the rules by creating a new category of “pre-emergency” DR resources.  These DR entities (with few exceptions) now must respond within 30 minutes, can have a minimum run time of one hour instead of two, and have revised price caps.  In other words, demand response can be more flexible and certain now.

It's certain that these will not be the last changes in policy at PJM.  Markets need to evolve to account for changing technologies, trends, and actions by market participants.  It's good that PJM has the capacity and the responsiveness to do so.