Evolution of US power market design seen as key to technology for energy transition

Understanding competitive power markets, which serve roughly two-thirds of US power demand, is key to developing new technologies as part of the energy transition that will need long-duration energy storage, carbon capture, advanced nuclear and other innovations, an executive said May 25.

"Understanding competitive power markets is key to integrating new technologies into existing market structures," Curt Morgan, CEO of independent power producer Vistra Energy, said during the virtual Advanced Research Projects Agency-Energy Summit.

As an IPP, Vistra relies on the wholesale electricity market for its revenue. The company is transitioning its power generation resources away from fossil fuels to low- and zero-carbon emissions resources, Morgan said.

As part of the company's climate change mitigation strategy, over 12 GW of coal- and natural gas-fired power generation was retired by year-end 2020 and another nearly 8 GW of retirements were planned over the next seven years from 23 predominantly coal-fired power plants, he said.

As the US power grid transitions, it will need to replace that capacity while adding even more as the country and economy electrify to deal with climate change.

Vistra is investing over $1 billion in solar power and battery storage in Texas and building the 300 MW/1,200 MWh Moss Landing storage facility in California, which is the "largest of its kind in the world," Morgan said, adding that over the next 10 years the company plans to spend $6 billion on renewables and battery storage.

Must compete amid lower prices

To spend that much money on new technologies, the projects have to meet "economic hurdle rates," meaning they must have real-world applications and must work while providing sufficient revenues from the market to cover costs, Morgan said.

Regulated electricity markets in the US are mostly in the Southeast, Southwest and Northwest, where vertically integrated utilities are usually responsible for system operations and management, with investment and construction primarily driven by system planning and approval by state public utility commissions, he said.

Competitive power markets foster competition for power generation among wholesale electricity market participants and provide retail competition, opening "a flood" of retail-level innovations, he said.

"Deregulated markets have been instrumental in facilitating the energy transition occurring in the nation's energy supply," and unlike regulated markets, companies and developers can build and operate new technologies without approval from utility commissions, Morgan said.

However, any capital investments need competitive market revenues to support them. Over the past decade the grid has seen a "revolutionary change" from the "massive" buildout of wind and solar power, he said, adding, "We believe energy storage and carbon capture and sequestration will take on an increasingly important role in the near future," along with micro-nuclear and hydrogen technologies that can be fostered at ARPA-E.

ARPA-E along with the Department of Energy, Department of Transportation, Federal Energy Regulatory Commission, and financial regulators are critical to developing, funding, and fostering technologies and market-based solutions to make the carbon transition possible, he said.

'Very low levels' for power prices

As the grid changes, further development of intermittent renewable power sources will drive the price of electricity in competitive markets to "very low levels" given their essentially zero marginal costs, he said, which will require technologies that can reliably balance the grid and manage risk as renewable power output fluctuates.

Markets need to evolve with technology to properly compensate resources based on specific market needs and accurate pricing for desired attributes like ramp time, start time and ability to operate in extreme conditions, known as ancillary services.

Payments for these attributes will become "the primary revenue source for power generation in the future," and ARPA-E is at the forefront of technology changes, thinking about existing market structures and potential regulatory changes bringing realism from a technology and policy standpoint, Morgan said.