|
|
|
|
|
NRG's David Crane Envisions Energy Future of "Choice," "Self-Determination"; Yet Company Favors Top-Down Capacity Mandates from Gov't
Freedom of Choice. Self-Empowerment. Self-Determination.
These are the promises NRG Energy CEO David Crane envisions in discussing the future of energy in a recent piece for GigaOm.com
Yet NRG is actively undercutting such promises in its largest market, Texas, by pushing for administrative mandates, government-determination, and neutered customers in the form of a centralized capacity market -- a design which robs customers of the promises Crane touts.
From Crane's GigaOm.com piece (all emphasis added):
"But the future of energy – and our modern civilization that depends on it – will not be driven solely by us or by any other one company, or even by any one country. It will be driven by the energy consumers of the world through their individual energy choices that increasingly are going to cleantech solutions.
"But since this great preponderance of the world's population will be energized in a manner very different – locally, sustainably and without an extensive system of wires and poles – from the way it was done in the US and other developed countries a century ago, we need a constant influx of new ideas rising out of new companies from outside the status quo-loving energy industry.
"As we already have seen, not all of these new companies will succeed – indeed, many likely will fail – but the consumer will benefit from the innovation, the freedom of choice and the self-empowerment that they will be offered and, as a result, the consumer will realize the enormous benefit of something our generation never experienced – energy self-determination."
Texans right now enjoy this "energy self-determination," or at least as close as any customer has come to date. The only part of the electric industry that Texans are compelled to pay for is transmission and distribution, which, at this point, is still a natural monopoly (we understand Crane envisions an eventual "cord-cutting" based on distributed power). However, every other facet of the Texas electric industry -- the amount of installed capacity, the type of generation and its fuel source, and how customers are charged for such power -- are driven solely through customer choice. This is a triumph of self-determination, but one which is under attack.
Under the guise of "reliability," NRG wants to place a yoke back on customers, because the choice which Crane envisions driving energy's future -- suddenly it can't be relied upon to produce adequate supply, or so it is claimed, contrary to a decade's worth of experience.
Rather than customers self-determining what level of capacity is on the grid, NRG wants the government to decide. Even if we were to concede that this is a necessary policy (which we do not), it cannot reasonably be said that such administrative mandates for capacity reflect customer choice or self-determination.
It's a step backwards -- back towards the top-down, regulator-driven ways of doing things, which the, "status quo-loving energy industry" prefers.
In a statement to EnergyChoiceMatters.com, NRG said that, "At NRG we see choice and capacity markets as complementary and in the interest of consumers who want both reliable power and greater control of their energy options."
NRG's full statement is provided below.
Apart from being patently contradictory to customer choice by forcing customers to accept a government-mandated amount of capacity, a centralized capacity market also decreases a customer's purchasing power and their ability to determine the type of capacity which should be on the grid -- and in particular will damage efforts to bring new, cleaner and more efficient power sources to market.
As noted above, the installed capacity in Texas right now reflects solely that capacity which customers value, through their retail buying decisions with their retail electric providers.
However, when the government introduces a centralized capacity market, customers' preferences for capacity are ignored, in favor of clearing the "lowest cost" installed capacity -- regardless of how much value that capacity brings to the customer overall.
Texas will be left with an installed capacity base reflecting the lowest going forward fixed costs -- which may sound economically rational at first, but only when you consider installed capacity in a vacuum. Customers don't care how much their power costs in fixed costs and variable costs -- they care how much value the capacity brings to the customer in terms of overall costs and any benefits the customer assigns to the power (e.g. clean power).
Capacity markets, through an artificial product definition of going forward fixed costs, create an unlevel playing field where the power plants most valued by customers -- new, clean, and efficient power plants -- will be displaced by dirtier, less efficient, and more costly plants, for the sole reason that old plants have largely sunk fixed costs, while the newest plants, while cleaner and more efficient, have high fixed costs of entry, and will be challenged to clear the capacity market -- even if the customers would prefer that these new plants get built, and would choose these plants (as indicated by their more frequent dispatch) in an energy-only market.
And if we believe capacity market supporters, scarcity pricing will be greatly reduced if not eliminated if a capacity market is adopted -- meaning new entrants will not be able to earn sufficient inframarginal revenues in the energy market to enter the market if they don't also receive a capacity payment.
Indeed, as will be more fully explored in a future analysis, the sought introduction of a capacity market, and forecast reduction in scarcity pricing, seems almost designed to hamper the cleantech companies touted by Crane in his GigaOm piece, because these companies rely on developing strategies to help customers manage and avoid the impacts of scarcity pricing. Facing this onslaught of competition for customer dollars, the "status quo-loving energy industry," under the pretense of "reliability", is arguing that compensation should no longer come through scarcity revenues, but rather government-driven payments for fixed costs -- a market which inarguably favors existing assets.
Moreover, capacity market supporters generally favor strict "minimum offer prices" or price floors which are designed to thwart entry by new, more innovative suppliers, even when these suppliers have verifiable cost advantages to the "status quo" reference unit chosen by the government.
This is only the tip of the barriers to customer choice presented by capacity markets. To the extent a three-year forward procurement obligation is adopted for capacity, customer self-determination is further eroded.
With companies like Google investing in the electric industry, rapid and dynamic change could soon be the norm. Right now in Texas, customers can immediately and seamlessly choose the best, cheapest, most efficient, and most value-adding generation solutions as they are developed.
In a capacity market with a three-year forward procurement, Texans are forced to buy capacity before they know what their options are, and are then locked-in to paying for that capacity. Three years is a long-time for tech companies -- what if in the interim, a company develops a workable and economic storage solution? Texans would have to wait three years before they can free themselves from the burden of the now-excessive capacity payments, propping up old-world central station generation.
Below is the full statement provided by NRG to EnergyChoiceMatters.com:
"NRG strongly believes in providing choice to the consumer in how their energy is made and used. We also strongly believe that a reliable grid is essential to meet consumers' needs and growing economies. These beliefs are fully compatible. A capacity market in ERCOT creates a competitive market to assure the overall service reliability the public expects and meets growing demand with the lowest cost resources, including demand response competing with generation. This needed structure is fully consistent with retail choice and the growing number of innovative offerings by retailers such as renewable energy products, time of use rates and energy efficiency, and over time greater participation in the capacity market as that design and technology advance and enable more retail demand response. At NRG we see choice and capacity markets as complementary and in the interest of consumers who want both reliable power and greater control of their energy options."
ADVERTISEMENT Search for more retail energy careers: Copyright 2010-
January 14, 2014
Email This Story
Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
NEW Jobs on RetailEnergyJobs.com:
• NEW! -- Director of Online Marketing -- Retail Provider -- Houston
• NEW! -- Regional Sales Manager -- Retail Supplier -- Texas -- Houston
• NEW! -- Director of Supply - Risk Manager -- Retail Supplier
• NEW! -- Contract Analyst (aka Pit Crew) -- DFW
• NEW! -- Regional Sales Manager -- Retail Provider -- NY, PA, & IL
• NEW! -- Channel Sales Manager -- Retail Provider
• NEW! -- Writer/Content Producer -- Energy Consultant/Manager -- Houston
• Retail Energy Business Analyst/Manager -- DFW
RetailEnergyJobs.com
|
|
|
|