Today in Michiana we are seeing some troubling energy trends. For most, the energy world seems exciting, innovative, and full of promise, although complex and hard to understand. Many consumers have thoughts and feelings about energy, but most know too little about the energy market to have a good sense for what’s happening. We will take a brief trek through the American energy world, starting in 2002 / 2003, look at a few different states, and Germany, and arrive home in Michiana’s energy market in just short series of paragraphs. Tactical Energy Group works to provide commercial and industrial consumers with utility strategies that align their business operations with energy market dynamics to reduce cost and risk. Take a look at some of the troubling energy trends we are seeing in Michiana, and America today.
July 2, 2003, the United States Department of Energy’s Office of Electric Transmission and Distribution released a document called “Grid 2030” A National Vision for Electricity’s Second 100 Years. The Goal: to “energize a competitive North American marketplace for electricity.” To “connect everyone to abundant, affordable, clean, efficient, and reliable electric power anytime, anywhere.” And “provide the best and most secure electric services available in the world.” Who couldn’t get behind that vision?
Goal: “Provide the best and most secure electric services available in the world” and “Connect everyone to abundant, affordable, clean, efficient, and reliable electric power anytime, anywhere.”
Unfortunately, a DOE National Transmission Grid Study from May of the year prior found that The North American electric grid, once labeled the “supreme engineering achievement of the 20th century” by the National Academy of Engineering, had experienced 25 years of severe underinvestment; Once an engineering marvel, our grid was found to be “aging, inefficient, and congested, and incapable of meeting the future energy needs of the Information Economy.” To attain the “Grid 2030” vision for “abundant, affordable, clean, efficient, and reliable electric power anytime, anywhere” we would need to address a regulatory framework which had created a “political log jam”, “unprecedented levels of risk”, “thousands of Megawatts” of capacity gaps, and “areas of grid congestion in numerous locations” across the country.
Problem: A grid found to be “aging, inefficient, and congested, and incapable of meeting the future energy needs of the Information Economy.”
Restoring our marvelous electric transmission grid would require multifaceted action. Achieving power abundancy would require different actions than achieving efficiency. Likewise, affordability, cleanliness, and reliability would each require different investments and efforts. Clearing regulatory stumbling blocks would certainly require political efforts of its own. “Grid 2030” necessarily took a holistic view of the energy system and called for diverse action including billions of dollars of new investment from private industry, governmental efforts to alleviate regulatory and political log jams, and increased R&D in “nuclear, renewable, and clean coal power generation systems, energy efficiency technologies, and hydrogen energy systems.”
Solution: Holistic, multifaceted action.
So, what happened in the intervening years? Why have electricity prices skyrocketed? Why are regional grid failures constantly in the news? Why did a winter storm produce unimaginable electricity price escalation (from $21/MWh to $9,000/MWh) in Texas last year? Why are Utility companies like Consumers Energy encouraging residential consumers to buy generators for their homes?
In 2006, An Inconvenient Truth, changed the National conversation about energy. In just 1 hour and 36 minutes, “abundant, affordable, clean, efficient, and reliable electric power anytime, anywhere” became “clean and green” ASAP. Carbon and nuclear energy became the enemy and wind and solar became the hero. For the past 16 years, “clean and green” have been at the forefront of the National energy conversation. In 2003, the DOE identified a national combined average cost / Kilowatt hour of 7 cents. Today, the National combined average cost / KWh is 12.9 cents, according to the Energy Information Administration. In the same time span, residential energy costs have increased from 8 cents to 14.92 cents / KWh. Energy costs have nearly doubled since 2003. This is because a well-conceived, holistic approach to restoring and improving our electric grid quickly gave way to a singular focus on large scale integration of renewable technologies, specifically wind and solar. But the results are in. If our grid is to remain stable and provide reliable, efficient, & affordable power, current solar and wind integration strategies must be revisited.
Energy Trend: Our Grid Begins to Experience Problems Around the 30% Renewable Threshold
- U.S. Energy Information Administration – EIA – Independent Statistics and Analysis
- Germany electricity prices, December 2021 | GlobalPetrolPrices.com
Energy Trend: Reserve Margins Are Falling in Utilities Across America. This Is Not Speculation, It’s Public Knowledge.
This public document shows that NIPSCO cannot even meet basic demand by 2023. What’s more is that this Integrated Resource Plan does not take into account additional demands on the grid from large scale deployment of EV changing stations. To understand the cause of NIPSCO’s razon-thin reserve margin, just look at the graph. Decommissioning coal and “replacing” it with solar and wind will not work on this timeline, if power delivery is to be abundant, affordable, and reliable. It’s not just NIPSCO; I&M and the greater Midcontinent Independent System Operator (MISO) projections show falling reserve margins, capacity gaps, and of course… cost increases. It is time consumers are aware of this troubling energy trend. (MISO faces growing capacity shortfalls in northern, central regions, annual survey finds | Utility Dive) (Capacity prices jump across MISO’s central and northern regions, driven by supply shortfall | Utility Dive)
- NIPSCO 2021 Integrated Resource Plan, Page 49
- IRP – NIPSCO
TEG Takeaway: Indiana Is in Trouble
TEG Takeaway: Michigan Is in Trouble
Take a look at Texas. If our conclusions are correct, how is it possible for Texas to maintain a 13.15 cent average residential cost / KWh with nearly 40% solar and wind power? Doesn’t the grid begin to experience problems around the 30% threshold? Yes, it does.
Grid trouble manifests primarily as either high costs, or grid failure events like blackouts and brownouts, or both. Texas utilities are deregulated, meaning energy costs are not regulated by the state like they are in Michiana. This means dynamic pricing is standard in Texas. Dynamic pricing allows Utilities to hedge against the supply risk of their renewable portfolio with prices that can increase in the event of a supply shortage. This allows for what we saw in the winter of 2021, where costs swung wildly from $21 to $9,000 / MWh .
Take a look at this NPR interview with Texas resident, Shannon Marrs, whose February electric bill was $10,180.76 Why Some Texas Residents Now Face Huge Electricity Bills : NPR
What good is a 13.15 cent cost / KWh average if consumers are exposed to inordinate amounts of risk in the form of $10,000 monthly electric bills every so often? And though they may be rare, who can afford an extra $10,000 expense even once every 5 years?
TEG Takeaway: Beware of the Texas Model
Though Texas Utilities are deregulated, and Michiana Utilities are still largely regulated, this does not mean that dynamic pricing is prohibited in Michiana. In fact, I&M, Consumers, NIPSCO, DTE, & Duke all already have dynamic rates on the books. For example, I&M rates 215, 240, 244, 321, & 327, and NIPSCO rates 821, 823, 824, & 826, among others, all have dynamic elements which allow for serious price fluctuation from day to day and month to month depending on how you use power. These rates have simply been approved by state regulatory committees. But that’s not all, Michiana’s Utilities have been experimenting with more dramatic dynamic pricing models which will likely become the new standard as state renewable portfolio standards force higher amounts of wind and solar into the generation mix and as coal and nuclear generation assets are decommissioned. Take a look at I&M rate 260 which allows your cost / KWh to increase from 11.405 cents to 71.934 cents, “when notified.”
When Hope (Hype) Replaces Physics:
This is not meant to be a comprehensive study or exposé, just an introduction to some little-known dynamics and troubling energy trends. There is a conversation that needs to happen on the consumer level, in all rate classes: residential, commercial, & industrial. But this conversation cannot happen if no one knows what’s going on. I would be willing to bet that the majority of consumers today believe that we are headed toward the “Grid 2030” vision, tirelessly pursuing “abundant, affordable, clean, efficient, and reliable electric power anytime, anywhere.” But the truth is that abundant, affordable, and reliable have taken a back seat to clean and efficient. This is not speculation, it’s there plain as day if you’re willing to look and see it for what it is.
Do you want clean and efficient power?
But do you also want abundant, affordable, and reliable power?
Can your company afford to either curtail its operations or pay 500% more for electricity “when notified”?
Can your family afford the occasional $10,000 electric bill?
Michiana’s grid doesn’t exist in a vacuum, and we aren’t waiting to see how current solar and wind integration strategies will play out. The results are in. We can look at other states and countries to understand how these strategies work and what impacts they have. Did you know that if you consume power in a regulated state like Indiana or Michigan (MI is 90% regulated), you are in a 3-way contract with your Utility and your state, meaning you can leverage that contract to your advantage (if you know how)? Did you know that regulated Utilities have to apply with state utility regulatory bodies (like the IURC in Indiana) before making changes to rate structures? Did you know that the industrial rate class has been expertly organizing and advocating for itself for years and, as a result, has incredibly low rates and favorable terms? Probably not.
It is this lack of knowledge and action from consumers that allows governments and Utilities to do what they will with the energy market. They can do this in the face of overwhelming evidence that the grid will be less stable, and costs will rise, because the brunt of the impact will pass through to you, the consumer. The grid is poised to be less reliable than ever before, and the stage is set for dramatic cost increases. If abundant, reliable, and affordable energy is still important to you, then current wind and solar integration strategies are failing and need to be revisited. The power lies in the hands of consumers. What will you do to protect your home, your business, and your wallet?
