We’ve argued that until those controlling the fate of America's power system publicly acknowledge that reliability is the most important—even indispensable—feature of a modern grid

Our Take, With Brad Hayes and Matteo Putzulu

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Doug SheridanDoug Sheridan • 1st • 1stIndependent Research, Analysis, Commentary & Opinion | Energy • Economics • PolicyIndependent Research, Analysis, Commentary & Opinion | Energy • Economics • Policy1h • Edited • 1 hour ago

We’ve argued that until those controlling the fate of America's power system publicly acknowledge that reliability is the most important—even indispensable—feature of a modern grid, the power sector will struggle to gain its bearings. Now there's evidence some have figured this out.

PJM Interconnection, the nation's largest ISO, last week conducted a capacity auction, as system administrators sought to ensure it can meet growing demand even as large slugs of capacity are retired. The price to attract capacity on the system jumped 10x from the prior year. The higher price will be paid and passed on to customers. To wit, Baltimore Gas and Electric will raise rates 11% in 2025.

The second example, though less obvious, is ERCOT. The ISO does not have a capacity market per se. Instead, it lines up what are effectively reserves each season. We looked at the reserves for summer 2024, and were amazed at what we found—no less than 160 GW of capacity either online or in reserve. That compares to peak demand of around 87 GW. The massive cushion speaks volumes. These too are assets that require returns. That is, they must get paid. And Texans do the paying.

So, if reliability is in fact Job One on these systems—and other ISOs, too (not a certainty)—where are things headed? Here's our guess:

• The all-in cost of power in the US by 2030 will be ~50% higher than if risky renewables were not prioritized on grids. That is, if the average US household's energy bill in 2030 would have been $150 (~16.5 cents per KWhr) per month without energy transition policy, it will now be $225 per month (~24.7 cents per KWhr).

• Once sophisticated customers get wind of the premium that comes with the redundant generation necessary to ensure reliability, the risk of an accelerating pricing "death spiral" grows. Large consumers who pay huge sums per month for power won't take 50% higher prices lying down. Should they move off the grid, even partially, households will pay up.

It's tempting to think the plan's always been to push a high-cost, resource-heavy system onto customers—and ensure reliability. Don't believe it. To wit, none other than the EIA forecast wholesale power prices would fall with the build out of supposedly low-cost renewables. That's clearly not what's happening.

The wager now appears that voters will be okay with energy costs 50% higher than what a grid unmolested by bad energy policy could deliver. It's not a good bet. Would you want to be the official explaining why paying 50% more is now the duty of Americans?

To be clear, a commitment to reliability is certainly better than the alternative. But it doesn't mean these grid operators have a grip on reality—there's also an obligation to provide reliability as economically as possible. Right now, that's not the plan.

Policy makers and grid operators do not possess blank checks to spend whatever they want to stabilize and green our grids. They should stop acting like they do.