The federal Inflation Reduction Act, signed into law by President Joe Biden in August, makes historic investments to accelerate the energy transition, reduce carbon emissions, and spur clean energy development. However, if we are serious about addressing climate change, advancing clean energy is only part of the equation.
To maximize the Inflation Reduction Act’s investments, the West must also explore opportunities to develop organized electricity markets — markets that enable cost-effective, clean energy deployment while maintaining reliability to the benefit of all customers.
The West’s fragmented electricity grid currently creates higher-than-necessary costs for all customers and inefficiencies for companies that want access to reliable, affordable, and clean energy.
However, creating a regional organized market, like one managed by a regional transmission organization, addresses two of the biggest issues facing western electricity consumers: reliability and cost. Interconnecting the West would enhance reliability and put downward pressure on electricity costs as the region’s generation mix responds to market signals and increasingly moves toward clean energy.
In an orchestra of utilities, an organized market acts like a conductor, independently operating transmission and directing wholesale market generators across the region. In the process, it creates multiple benefits, including:
- Reducing the cost of acquiring electricity generation through competitive processes – even more important amid high energy price inflation;
- Enhancing reliability through resource sharing and transmission build-out;
- Fostering innovation by providing a level playing field to incorporate advanced technologies faster; and
- Creating greater customer options to drive clean energy.
In Colorado, competition is yielding benefits. For example, an all-source competitive solicitation by Xcel Energy yielded record-low procurement prices for wind, solar, and battery storage. Competitive approaches with proven benefits should be scaled, including regional organized markets.
Recently, a multi-state western market study demonstrated a potential $2 billion in cost-savings from more regional electricity market integration. A Colorado study similarly demonstrated “full participation by the electric utilities in a (regional transmission organization) could deliver approximately $230 million annually” through sharing reserves, and operating costs and infrastructure investment savings. More recently, research found a western regional transmission organization could increase the gross regional product $79 billion per year across the West.
These savings are likely larger in reality, after the passage of the Inflation Reduction Act. The act provides significant cost reductions for wind, solar, and other clean energy technologies through 2030, increasing clean energy’s cost advantage in competitive markets.
Despite years of debate, states are making important headway, modernizing antiquated electricity market designs, including in the West, which lacks organized electricity markets outside of California.
Last year, Colorado and Nevada enacted legislation requiring that transmission utilities join an organized wholesale market by 2030, specifically one managed by a regional transmission organization or an independent system operator — or prove why joining one would not be prudent.
Instead of harnessing this forward momentum and exploring opportunities to build an organized wholesale market – one that accounts for the West’s unique needs – there are utilities that want to unilaterally develop, oversee, and operate a more limited western electricity market. Leisurely discussions and utility dominated timelines are simply too slow. Consumers deserve to enjoy market benefits that counter energy price inflation sooner rather than later.
Utility-controlled incremental change, without a larger plan, is a recipe for inaction. A region-wide organized market that proactively includes a diversity of resources and plans and builds adequate transmission is the best way to accelerate affordable, reliable, and clean energy. Many western states are committed to clean energy goals; however, these goals will be more expensive and slower if tackled just within state borders.
The West needs a comprehensive approach — one that builds the needed collaboration, trust, and transparency required to explore full market options. Energy consumers want and need affordable and reliable energy; however, they also want increased competition, transparency, and cleaner electricity options.
Now is the time for the West to provide clear direction to utilities joining electricity markets. State legislators and utility commissioners are uniquely positioned to direct utilities to join the types of markets that will maximize customer impacts but need support.
The U.S. Department of Energy is requesting that Congress fund a Wholesale Electricity Market Technical Assistance and Grants program to provide grants to states to help them evaluate new markets and market improvements, including market governance and regulatory development assistance.
As the West explores market options, new stakeholders and industries dedicated to lowering costs of clean energy and flexible approaches to market management must be active participants. Most importantly, Colorado needs to lead these efforts with a sense of urgency — both to deliver economic benefits to all energy customers and position the state as an innovation and technology leader.
Ron Lehr of Englewood is board chair of New Energy Economics and former chair of the Colorado Public Utilities Commission.
Misti Groves of Washington, D.C., formerly of Boulder, is vice president, policy and market innovation, for the Clean Energy Buyers Association.
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