Breaking Through the Power Gridlock: Key Regulatory Reforms and Technologies

摘要

Within the past three years, power industry restructuring efforts in the U.S. have reached acrisis point. Despite largest generation build cycle since the late 1970s, reliability hasperceptibly declined. The emergence of a surplus in generating capacity in many areas hasseverely eroded earnings and valuations among competitive energy merchants; yet manymarket power problems remain unresolved. It is clear that the regulatory framework in placetoday is not sustainable.A primary cause for this precarious condition is a long-term decline in transmissioninvestment. The important role played by the grid has simply not been adequately reflected infederal- and state-level industry reform initiatives to date. Electric power remains,fundamentally, a network-based industry -- and the success of competitive reforms depends,therefore, on the health of the physical network. Yet many reforms have bypassed the issue ofgrid infrastructure investment, assumed the continuing reliability of the grid, or even aimedexplicitly at avoiding the need for grid upgrades. But few have, until the recent issuance ofFERC's proposed rule on Standard Market Design, explicitly tackled the challenge of attractinginvestment in this critical public asset.The long decline in grid investment has resulted in eroding reliability margins to the point that,today, inadequate grid capacity is seen as the chief impediment to orderly market development.Against this backdrop, FERC's SMD initiative represents a crucial turning point for theindustry. Its framework of locational marginal pricing represents the first time U.S. regulatoryreforms have aimed at restoring a strong business incentive to address congestion directly bystrengthening the backbone transmission network.Falling grid investment is, of course, not simply a function of perverse business incentives.There remains serious doubt whether transmission projects can get built in an increasinglystringent siting environment. Materials advances in such fields as power electronics,superconductivity and advanced composites have made a wide range of new technologiesavailable to enhance the capacity, reliability, flexibility and "intelligence" of the power grid --without the environmental impacts associated with traditional grid upgrades. This paperdiscusses the complementary role of regulatory reforms and new grid technologies infacilitating robust markets: both are necessary, and neither alone is sufficient. Together,Standard Market Design and other reforms, along with new grid technologies, can enable anew wave of investment and innovation in the grid to enable robust power competitionconsistent with today's land use and environmental constraints.