Vertically integrated utilities that are not required to engage in competitive markets for generation resources tend to inefficiently over-capitalize projects because of a guaranteed rate-of-return on capital investments, passing capital risks to the customer. As the energy industry evolves, stakeholders are examining practices that could remove incentives to overbuild or increase competition for generation projects. For example, public utility commissions could employ performance-based regulation practices that would incentivize value to customers. Requiring utilities to make use of competitive solicitations for resources or use all-source Integrated Resource Planning (IRP) processes could result in lower cost, clean portfolios.
Finally, a well-functioning energy procurement structure is critical to achieve the massive amount of generation investment needed to reach a decarbonized grid. One report finds the U.S. will need 1,100 GW of new renewables and energy storage by 2035 to achieve 90% clean electricity, equivalent to 70 GW per year. Energy procurement structures, on a voluntary or mandatory basis, should facilitate long-term contracting, resource adequacy, and lower financing costs. Resource adequacy planning practices, for example, are evolving to better meet future needs with the establishment of improved planning targets and metrics. In areas where new organized wholesale markets are being developed, the roles of different industry participants may evolve as well. CEBI is looking to solutions that encourage utilities and states to integrate competitive practices and forward-thinking procurement into the electricity sector.
Resource Adequacy General Approaches and Importance to Energy Buyers Primer
This Primer is the first edition of a series on resource adequacy and aims to educate energy customers on what resource adequacy is and how it impacts electric reliability, clean energy integration, and cost efficiency.