June 26, 2017

Brattle Economists Recommend Moving beyond "Baseload" Generation for Planning and Operating Today's Electric Grid

Economists at The Brattle Group have released a report today explaining how the use of the term “baseload” generation is no longer useful for the purposes of planning and operating today’s electricity system.

Prepared for the Natural Resources Defense Council (NRDC), the Brattle report examines why traditional “baseload” power plants, such as coal and nuclear, are becoming less economical, why their ability to produce power continuously is less essential in today’s supply mix, and why operational flexibility is an increasingly important ingredient for a cost-effective supply of electricity. Despite changing market fundamentals that have reduced the previously favorable economics of coal-fired and nuclear power plants, “baseload” generation is still often perceived to be connected with the concepts of system need and system reliability due to the historical use of the term.

“The modern supply mix is really a complementary mix of variable resources that provide least-cost energy and environmental attributes, and flexible resources that provide low-cost energy, capacity, and operational flexibility,” notes Brattle Principal Judy Chang, a co-author of the report. “Baseload technology can contribute to that mix, but only to the extent its performance attributes are responsive to the market needs. Increasingly, those needs are best met by resources that are flexible enough to avoid baseload operations.”

As system planning and electricity market design are modernized, the Brattle report notes that the attributes most under-recognized by today’s markets are greenhouse gas emissions (in some jurisdictions) and operational flexibility. According to the authors, more flexible resources are increasingly needed to cost-effectively assist with meeting changing system loads, responding to location-specific requirements, and integrating the variable output of renewable resources. These flexibility needs are expanding as a result of several industry trends, including: (a) recognition by policymakers that renewable energy resources are needed to meet long-term emissions reductions goals; (b) customers’ increasing desire to use clean energy and distributed energy resources to produce electricity on-site and to dynamically manage their energy use; and (c) substantial technological improvements that have driven down the cost of renewable resources to the point where, even before accounting for tax incentives, they are the lowest-cost option for new generating plants in some regions of the U.S.

How well traditional “baseload” generation will fare in the new market will depend on the combination of cost effectiveness and operational and public policy attributes these resources bring compared with other existing and new resources, according to the Brattle report. Importantly, while increasing system-wide flexibility needs may devalue inflexible baseload resources, the overall economics of coal and nuclear plant is challenged most severely by low natural gas prices. The authors note that system planners and market administrators should focus on a framework that effectively and efficiently defines and measures system needs, and develop planning tools and market mechanisms to elicit and compensate the broad range of resources that have become available to meet those needs.

The report, “Advancing Past “Baseload” to a Flexible Grid: How Grid Planners and Power Markets Are Better Defining System Needs to Achieve a Cost-Effective and Reliable Supply Mix,” is authored by Brattle Principal Judy Chang, Senior Associate Mariko Geronimo Aydin, Principals Johannes Pfeifenberger and Kathleen Spees, and Research Analyst John Imon Pedtke. It is available for download using the link below.