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Trump means big change: power market observers

The Trump administration: A Platts news and analysis feature

By Mark Watson

Published online 05 January 2017

Electricity industry observers expect the incoming president and GOP Congress to have a big effect on power markets in 2017, shifting momentum away from renewables and toward fossil fuels and nuclear power, but perhaps not budging the power price needle.

"For the US, the top electricity-related news item in 2017 should be the efforts of the Trump administration and the new Congress to change present clean energy programs and the effect those changes would have on electricity and gas prices," said Matthew Cordaro, a former Midcontinent Independent System Operator president and CEO, who now resides in New York.

Dave Tuttle, a University of Texas Energy Institute research fellow, said he expects 2017 to be peppered with "debates and machinations about policy in the new Trump administration that, in the end, may be moot, given the cost trends for wind/solar and low [natural] gas prices."

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"President Trump is not going to be able to significantly revive coal, despite the rhetoric," Tuttle said in an email.

Asked to speculate about the likely top power market stories of 2017, Marjorie Philips, Direct Energy director of regional transmission organization and federal services, listed a "potential roll back of recent environmental regulations by new administration" and "potential tax policy changes impacting renewable generation."

Several sources cited as potential market movers legislative actions in New York and Illinois to subsidize nuclear power, and said regional actions mandating renewables — particularly in California, New York and New England — might also be important for power markets.

UT's Tuttle said President-elect Donald Trump is likely to "kill" the US Environmental Protection Agency's Clean Power Plan, which was designed to cut US carbon dioxide emissions from existing electricity generation by 32% by 2030, but that may not be the end of the fight. Texas and other states that fought the CPP in court will end their efforts, but other states, such as California and New York, might enter the fight in favor of carbon dioxide regulation, Tuttle said.

Wind, solar, gas to weigh on electricity prices

Meanwhile, the momentum in the Electric Reliability Council of Texas for more wind and solar development, in combination with a Trump administration's support for fossil fuel exploration and production, may be hard to stop, weighing on power prices.

"Further increases in wind/solar deployment and cheap gas will continue to depress wholesale ERCOT prices," Tuttle said. "There might be more significant occasional price spikes, but these price spikes may not be long enough in duration to create sufficient profitability for the year for many generators."

During the ERCOT Board of Directors December meeting, Beth Garza, who heads the Potomac Economics independent market monitor office for ERCOT, said ERCOT had extended periods of negative pricing related to wind power in 2016.

"We'll see some more of it next spring, I suspect," Garza said. "The number of megawatts generated from each megawatt of installed [nameplate] capacity keeps increasing."

In the East, the New York State Public Service Commission has begun implementing a Clean Energy Standard program designed to raise renewable power's share of total demand to 50% by 2030, and it includes subsidies totaling an estimated $600 million a year for Upstate nuclear plants.

Gavin Donohue, Independent Power Producers of New York president and CEO, said that in 2017's process of implementing the CES, in combination with New York Governor Andrew Cuomo's Reforming the Energy Vision initiative to revamp the state's utility business model, "it's going to be critical that the new market produce the value resources need for reliability, such as those with fast- ramping capability as more and more intermittent [renewable] resources come online in New York."

The New York Independent System Operator "has already begun the process of looking at such changes, including the potential for pricing carbon in the wholesale market, and I look forward to the results of those studies," Donohue said.

Matthew Schwall, IPPNY communications manager, said the process New York has begun is a "massive undertaking" to determine "what are the implications for the wholesale market, what is going to be needed to accommodate the growth in renewables."

The CES effort may be killed in its crib, as Dynegy, Eastern Generation, NRG Energy, Roseton Generating, Selkirk Cogen Partners and the Electric Power Supply Association sued in federal court in October, claiming the PSC's plan usurps the US Federal Energy Regulatory Commission's "exclusive authority ... over 'the sale of electric energy at wholesale in interstate commerce.'"

'Fuel-neutral' resource actions needed: EPSA CEO

John Shelk, EPSA president and CEO, wondered what the new administration's appointees to FERC and the Department of Energy might "do about pursuing fuel- neutral instead of fuel-specific reforms to reconcile federally regulated wholesale markets and state/regional actions that distort wholesale markets."

"In other words, even if courts let states act or just don't rule on the issue in 2017, will FERC focus on and act to offset the negative effects of out-of- market state actions on wholesale markets?" Shelk said in an email.

Todd Shipman, US utility sector lead for S&P Global Ratings, which shares the same parent company as Platts, said, "A future of less carbon intensity is going to happen ... whether it is President Trump or it [had been] President Clinton."

Regarding New York's REV initiative, Shipman said, "It only works if you have healthy utilities," and industry leaders have "gotten the message that they're not going to be the utilities that their grandparents had."

Elsewhere in the US, Direct Energy's Philips speculated that capacity market changes are likely to buffet power markets.

The Midcontinent Independent System Operator submitted to FERC in December tariff language creating a three-year-forward capacity market for competitive retail areas in the MISO footprint — Illinois and Michigan.

The PJM Interconnection in November submitted tariff language to FERC to create a program to match resources, such as demand response, that are more available in summer to other resources that are more available in the colder months to collectively serve as year-round resources in PJM's new Capacity Performance Market, which penalizes resources that fail to meet obligations when called upon.

In the West, the lingering effects of the Aliso Canyon natural gas storage disaster, that event's effect on natural gas prices, and the prospect of a stronger hydro power year are likely to create mixed market effects in the West, according to Michael Griswold, CEO of Ansergy, a Seattle-based energy market consultancy.

In Texas, Chris Reeder, an Austin, Texas-based partner in the law firm of Husch Blackwell, said the Public Utility Commission of Texas proceeding for NextEra Energy's acquisition of Oncor, the state's largest transmission and distribution company, is likely to be big news, along with the proposal for Lubbock (Texas) Power & Light to join ERCOT.

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