Michigan needs a swift build-out of renewable energy and, in the longer term, more transmission projects to account for the energy shortfall that will grow as more coal and nuclear plants are retired.
Last month, the Midcontinent Independent System Operator (MISO) — the entity overseeing the electric grid spanning several states from Canada to the Gulf of Mexico — held its annual capacity auction that sets wholesale power prices in various zones for the year ahead. Nearly all of the Lower Peninsula comprises MISO’s Zone 7.
The auction results showed the Lower Peninsula fell short of the necessary generation to maintain reliability, causing a small percentage of wholesale power prices in the Lower Peninsula to skyrocket. By comparison, nine of the 10 MISO zones had clearing prices around $5 per megawatt day (MW/day). Zone 7’s prices cleared at $257.73 MW/day, or the maximum known as the Cost of New Entry. The prices are in place from June through May 2021.
While the shortfall was largely due to new accounting by MISO, the results suggest a bigger shift underway in the Lower Peninsula: Retiring coal plants and the Palisades nuclear plant in Van Buren County are driving the need for more in-state generation. The quickest way to meet the target is building renewable energy, experts say, in addition to a 1,100 megawatt natural gas plant DTE Energy is building in St. Clair County.
“If you start removing a nuclear plant and some others and you don’t have the capacity to fill that gap, then you’re in a very different situation and you are really risking the reliability of the grid,” said Valerie Brader, an attorney at Troy-based Rivenoak Law Group PC and former director of the Michigan Agency for Energy under Gov. Rick Snyder.
The coronavirus is also playing a role, Brader said. Although Michigan’s overall power demand has dropped 15-20 percent during the pandemic, ramping back up during an economic recovery could further strain the system. Meanwhile, COVID-19 has the potential to delay some utility-scale renewable energy projects.
Michigan Public Service Commission Chairperson Sally Talberg called the situation “dynamic.” Zone 7 is expected to fall short again next year but rebound after DTE’s gas plant comes online in 2022. Palisades and coal plant retirements also are factored into the projections, “although unexpected changes could occur” that affect the numbers, such as new generation not coming online, extended plant outages or changes in demand.
MISO’s annual planning resource auction sets wholesale power prices for the year ahead. Each year utilities in MISO’s region must secure enough resources to meet the grid operator’s requirements, either by owning or contracting for generation or purchasing it through the auction. Power companies can buy or sell resources into the auction.
Within Zone 7, the Lower Peninsula didn’t meet its Local Clearing Requirement, or the amount of generation that’s required to come from within the zone. For the first time in the auction’s history, prices in the Lower Peninsula cleared at the maximum level.
Zone 7 was short of the minimum requirement by just 123 MW, meaning 5 percent of the wholesale power demand will pay higher prices. It’s also unclear which electricity customers will pay the higher prices — in fact, some utility customers will see benefits if their power company has excess generation and sells it on the wholesale market.
That’s the case with Jackson-based Consumers Energy, which has “more than enough in-state electricity generating capacity” for its full-service customers, said spokesperson Brian Wheeler. Consumers sold some capacity to energy providers that didn’t have sufficient local capacity.
“The higher auction price will benefit our full service customers because all of the proceeds from Consumers Energy’s capacity sales in the auction will flow directly back to the customers in the form of lower electricity rates,” Wheeler said. “We will be watching to see if alternative energy suppliers are able to secure the electric generating capacity they will need under Michigan’s energy law.”
The higher prices are likely to hit electric “choice” customers who buy power through alternative suppliers. Depending on how those contracts are structured, customer bills may increase if suppliers didn’t purchase power ahead of the auction. The Coldwater Board of Public Utilities will reportedly face $2.3 million in additional costs as a result of the auction.
Tim Lundgren, general counsel for Energy Michigan, which represents alternative energy suppliers, says MISO’s tariff “has created a bit of a shortage on paper where there isn’t a reliability problem. There’s plenty of electricity. Part of the problem is the way MISO’s tariff is structured. Really, it’s a mathematical problem that could be addressed and fixed quite readily and would add considerably to our available resources we could use.”
The MISO auction results also suggest that “we need a focus on getting some of these new renewable energy projects built in Michigan,” he said.
In the longer term, Lundgren and others say Michigan could meet its generation requirements by importing more power from neighboring states to the south. Known as the capacity import limit, transmission has been largely constrained into the Lower Peninsula compared to neighboring states and even the Upper Peninsula.
Earlier this year, the Michigan Public Service Commission asked MISO to study the potential for increasing transmission into Michigan. It’s a longer-term goal, as it often takes several years to build new or upgrade transmission lines, often with local landowner opposition.
“Transmission is definitely a way to make a big difference,” Brader said. “That being said, transmission takes a while to build, and at this point, there hasn’t been a project proposed. In the near term, you’ve got to get the renewable projects built and make sure demand response and energy efficiency work can continue.”
Wheeler said Consumers’ Clean Energy Plan, which anticipates 6,000 MW of additional solar energy by 2040, aligns with the gradual closing schedule for its remaining coal plants and ending its Palisades contract. During the pandemic, Consumers also has continued work on a wind project in Gratiot County.
“We think it’s always important for energy providers to develop and follow long-range plans that ensure there’s a reliable energy supply for their customers,” Wheeler said. “The MISO auction results indicate a need for more electric generation within the Lower Peninsula of Michigan. That’s what we are doing through our Clean Energy Plan.”
Without enough in-state electricity generation, the chances for power outages increase, Talberg said.
“The auction was designed to send this signal that more generation is needed in the local area and/or increased transmission,” she said in an email. “Not meeting the (local clearing requirement) does not mean Michigan will have power outages due to lack of supply but it does increase the probability of it.”