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9 January 2020

FERC’s new leaders want to slam door on all Renewables in PJM

In the dying days of December two of Donald Trump’s energy minions – the two Republications on the Federal Energy Regulatory Commission (FERC) effectively sabotaged renewables within the region and the US press has been up in arms about it ever since.

Effectively the decision was that anyone enjoying subsidies in the renewables market would have to accept a Minimum Offer Price Rule (MOPR) that would rule them out of the PJM market, a $10 billion, regional transmission organization in the US, serving Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Columbia.

This spat has been going on since June 2018 when FERC told PJM to reform, but in the twilight just prior to Christmas it did the job for PJM and raised an order, giving PJM 90 days to comply – making an order look like it was aimed at levelling the playing field, when it will lead to huge, multi-$ billion increases in electricity costs, which it will then promptly blame on renewables.

This reflects the partisan nature of the Republican climate change deniers who are in office – at FERC this is Neil Chatterjee and Bernard MacNamee, the republicans Trump placed in charge last year. Essentially, they are saying, “if you have renewable subsidies you have an unfair advantage, so you cannot bed below this price,” when in fact 90% of all advantages are the subsidies which US fossil fuel companies have taken for granted for the past 100 years, in the form of tax breaks far more generous than renewable subsidies.

Many words have already been written on how unfair this is, how it favors mostly natural gas because the coal industry is almost dead, and how it runs counter to what society wants. We won’t waste our time here – it is an unfortunate consequence of a climate change denier being in the White House, and it will get undone as soon as he is no longer there.

But it does increase the amount of damage that can be done while Trump’s party controls FERC. For anyone who believes the IPCC about there being just ten years to fix global emissions problems, if Trump gets in for a second term, and if then a new president who is sympathetic to renewables comes into power, then for at least another 5 years these rules will stand, and investors will stray away from renewables across the US. It is true that US investors will make plenty of non-US renewables investments, but the US renewables market will take 3 years to ramp its pipeline for new investments once Trump is replaced, meaning that for 8 of those ten years, renewables in this part of the US will hit a wall. It’s a serious problem.

The same rule could be enacted across the entire US through other markets, and that might slam the door in the faces of US renewables investors, regardless of their awareness of climate change and their willingness to invest – if they cannot take part in particular markets, they will attract fewer investors – simple.

What this logic clearly shows is that no-one can afford to take this lying down. There will be ways to “game” this new system, ways to bypass the PJM market and go straight to enterprise PPAs for some, and there will be legal action. This decision will lead directly to higher prices for consumers, so that’s one area where the law can come to the aid of renewables; and that in turn could sway the coming Presidential election, if consumers manage to put two and two together and understand the complicated way in which US energy is regulated, and how Mr. Trump has hobbled consumer interest.

More people will die from polluted air, and a suit could be brought on their behalf, and investors already into renewables might look to sue for a fair price advantage. Others might highlight “unfair” tax breaks for fossil fuel companies and lobby for FERC to come down hard on these at the same time, opening another huge can of worms.

PJM has 90 days to comply with the FERC order, and then some time to reschedule auctions, so it has the next move, due around mid-March and we expect it to leave its response until the last minute, and then try to find a way between the regulatory cracks – unsuccessfully. There is the potential for other parts of the government to get involved – but don’t hold your breath waiting for the EPA to intervene, not now it is headed by another denier in Andrew Wheeler.

Will this keep the coal industry alive? No, but the strategists behind this have failed to see some glaring tell tale signs. Everyone’s electricity is going to go up, even enterprises who sign ultra-cheap PPAs will have the other half of their grid connected energy come in at a dramatically increased prices. That will make everyone, not just Democrats, angry. Eventually FERC will be named as the culprit and the Republican party will get the price increases in the neck – showing in this year’s voting. The other issue is that renewables will shave yet more off their prices, with or without selling Renewable Certificates and go hunt for any market that will let them sell fairly against fossil fuels and cause maximum damage.