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Welcome to Grid Brief! Here’s what we’re looking at today: FERC’s Mark Christie pushes for power market reform, UK Labour’s biggest financial backer wants to renationalize the country’s power market, and more!

Christie Pushes Power Market Review

In a recent article in Energy Law Journal, Federal Energy Regulatory Commission’s Mark Christie questions the current single clearing price structure in power and capacity markets.

“With a single-clearing price, such as a locational marginal price, or LMP, in capacity markets, all sellers receive the clearing price it takes to meet demand, even if they offer less,” reports Utility Dive. “A wind generator, which had no fuel costs and may receive tax credits, could offer $0/MWh, but could receive a vastly higher clearing price.”

Over time, this can make it unprofitable for baseload power plants to operate, especially when renewables receive lavish subsidies. This is something Christie’s co-commissioner James Danly pointed out in his recent testimony before the Senate.

“The subsidies available to renewable generators are so lucrative that they are able to be offered at a price of zero instead of their actual cost,” said Danly. “The market signal thereby created is that these new resources can be built for free, and thus the cost of power is also free. This, of course, is untrue, and the inevitable consequence is market-wide price suppression.”

This price suppression then forces baseload plants off the grid, threatening reliability. Christie seems to agree.

“Investment in dispatchable generation that can no longer compete against heavily-subsidized, no-marginal-cost competitors will dry up, because what investor wants to risk capital on a generation resource that will face a market pricing mechanism stacked against it?” he writes.

Christie recommends bilateral trading, and average pricing. He also suggests splitting markets into two groups for real-time and day-ahead markets: one for low-marginal cost resources (such as wind and solar), and another for gas. For capacity markets, he suggests implementing a “pay as offered” mechanism, establishing easier ways for load-serving utilities to supply their own capacity, swapping forward capacity markets with near-term auctions, and phasing out capacity markets altogether.

Christie’s journal article reveals that there are substantial doubts about the fundamental soundness of the electricity markets as they have been established.

UK Labour’s Biggest Backer Wants to Nationalize Energy

Unite, the largest financial backer of the Labour Party, plans to urge party leader Sir Keir Starmer to reconsider the case for nationalizing the entire UK energy sector.

The trade union accuses energy companies of "profiteering" and "greedflation" and believes nationalization is necessary to address public anger over high bills and record corporate profits. Although Starmer has abandoned the previous plan to nationalize the energy, mail, and water industries, he supports the creation of a state-backed green energy company to accelerate the transition to a low-carbon economy.

Sharon Graham, general secretary of Unite, will present a report to Starmer outlining the benefits of state ownership of energy distribution networks, the big six household suppliers, and the North Sea oil and gas industry. The report estimates the cost of acquiring these businesses to be between £90 billion ($122.4 billion) and £196 billion ($266.5 billion), potentially increasing the national debt. However, Graham argues that the UK, which has a GDP of £2 trillion ($2.7 trillion), can afford it.

While the UK government has spent about £100 billion ($137 billion) on energy bill subsidies since the start of the energy crisis, households have still seen significant increases in their bills since 2021. In contrast, some European countries with state-controlled energy companies have not seen such steep price rises.

But Sir Dieter Helm, a professor of economic policy at Oxford, told the Financial Times, “The issue really isn’t the idea they can’t afford it. They can. It’s what they want to do with it?”

“The Unite paper is going for the wrong model,” he added. “But the central issue for all models is that the electricity networks need massive investments, and some of the distribution network companies are not in a good state to do what is needed.”

Analysis by the Centre for Policy Studies suggests that nationalization often requires higher public expenditure to facilitate policy changes, as profits may be needed to repay borrowing costs instead of driving down consumer prices.

The UK electricity markets were the inspiration for their American peers.

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