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Electricity Markets

Managing the Continuing Reconstruction of Resource Adequacy Requirements

By Matt King, Director, Markets & Analytics, GDS Associates

The topic du jour in organized power markets and across the power industry has been resource adequacy, which is the ability of the electricity system to reliably meet demand under a broad range of conditions.

In recent years, that ability has been stressed by extreme weather events, the ongoing grid transition to a decarbonized future (both thermal plant retirements and new renewable generation), and novel load growth. These motivators for overhauling resource adequacy requirements continue to strengthen, and every region of the country is actively considering or implementing major changes.

Resource adequacy requirements are the combination of setting appropriate planning reserve margins as well as determining how much accredited capacity should be afforded to specific generation resources. Through these processes, demand is met with supply according to a defined level of reliability for an upcoming period.

Across the country, regional operators are pursuing changes to how both planning reserve margins and capacity accreditation are determined. Resource adequacy is also being assessed over more granular time periods (e.g., in winter and summer separately instead of over an entire year). Shifting the resource adequacy assessment period compounds the level of change to both load requirements and supply accreditation.

New Models Have Dramatic Effects

Planning reserve margins and contemporary accreditation methods leverage loss-of-load expectation models to simulate system reliability and resources’ capability to serve load. In light of recent reliability events and anticipated grid transition, regional operators are modifying the inputs and assumptions of those models to consider additional risk.

The incorporation of additional risk results in higher planning reserve margins and lower resource accreditation to meet the same level of reliability. At the same time, the shift to assessing over sub-annual periods can move the traditional focal point of resource adequacy away from system peak demand. As particular times of the year are individually assessed, including in light of new risks, there can be dramatic results.

For example, the Southwest Power Pool recently presented initial figures that indicate it could need a 45% winter reserve margin in 2026, as compared to its current 15% reserve margin requirement, which does not apply to winter. The Midcontinent Independent System Operator has already implemented a four-season construct, which imposed non-summer capacity requirements that previously did not need to be planned for and significantly reduced the value of solar capacity outside of summer (to name just one effect).

Despite already having implemented those significant changes, MISO continues to pursue additional reforms and recently released a study revealing results for various resource technologies under its proposed accreditation method. For the summer season, the accreditation of solar resources on average today would be 32% — dropping to 9% by 2027 and 4% in 2032 — a far cry from some solar resources that previously received greater than 50% capacity credit for the entire year.

Plan Accordingly

Both the magnitude and pace of change to resource adequacy requirements pose a major challenge to utilities’ ability to plan, especially for public power utilities with an obligation to reliably serve at affordable rates. Decision makers and planners need to consider (1) today’s rules and how to operate successfully under those rules; (2) rules that are actively in flux, may have already been filed for approval, or are being implemented for future years; and (3) rules that, given current trends, are likely to be overhauled in the coming years.

In addition to the confluence of rule changes, decision makers and planners need to be aware of the surrounding regional system since model-derived planning reserve margin and accreditation results are driven heavily by system composition. For example, will solar proliferation over the next 20 years in MISO be as aggressive as anticipated, or more or less so? Recognizing that industry changes can result in cost increases, utilities need to carefully evaluate and consider the impact of increased capacity requirements and reduced resource accreditation on their costs and ultimate rate affordability.

Although reform efforts will persist beyond this year, 2024 is shaping up to be a critical year for advancing resource adequacy changes and their trajectory for future years.

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