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Energy Markets 101: Ben Otto Presents to IEF’s Advisory Council 

Ben Otto is a Boise-based consultant working with the Northwest Energy Coalition, a group in the region covered based in Seattle, covering Washington, Oregon, Montana, Idaho. The Coalition works to advance energy efficiency, renewables, low income access and pricing, and on wildlife and fish issues across the region. The group works closely with utilities, including Bonneville Power to develop energy markets for renewables in the West. 

One challenge is the diversity of policies related to energy in the West. The West Coast states have a number of policies, while Montana and Idaho have very few or none, so one of Otto’s goals is to bring a balanced view that everyone can support. 

The United States has several organized energy markets where every utility customer supplier in a certain zones can trade power and deploy an automated system that handles contracts and pricing. In the West, we have “balancing areas” that roughly match our local utilities. Some of our utilities are massive, like Bonneville Power and Idaho Power, but many are small players, so much of the trading in our area is simply two-way trading between players like Idaho Power and Nevada Energy, Otto explained. 

“That all works pretty well when there’s plenty of available supply and plenty of time to address these issues,” he said. “But where it really matters is when times of really high demand or low supply, high demand, say a cold snap in the winter, a super hot point in the summer, low supply could be in the fall when our hydro system is running at its lowest points, but people are still really active in either of those cases.” 

Otto said this is economics 101 in that, if you have high demand and low supply, you get high prices, and volatile prices because there’s not a lot of balancing or excess slack in the system. If you’re a buyer of power,, you have to keep the lights on, so you’re subject to whatever price is out there in the market, and it’s really hard to mitigate that risk.

Utilities also function as “resource takers,” Otto said, meaning they have to take whatever generation source is available at that time. 

“And if you’re a utility with a clean energy goal, like Idaho Power has a corporate clean energy goal, it’s hard to meet without a market because in those high demand low supply times, you don’t get to pick your resource,” Otto said. “You have to take whatever’s available. Often that last thing, the marginal resource is also very expensive.” 

Otto said another problem is that the transmission grid and the supply side of things are not really managed or coordinated presently, so the bilateral transactions also require transmission access or they don’t solve the problem. The supply and delivery mechanisms aren’t necessarily unified, which in a worst-case scenario could lead to rolling blackouts. Idaho has a robust grid so this has not been an issue here, Otto said. 

The idea of balancing in the Western market is that you pool resources across a big geographic area, which then allows you to rely on your neighbors and count on them for energy supply being available. This saves local utilities money because they don’t need to build infrastructure to meet the peaks that inevitably come. Sharing resources reduces overbuilding, particularly when it’s just say two, three hours of the year when you need the most supply.

Consumers win in this model because more supply from an entire region leads to lower prices as suppliers compete for the lowest price offering and don’t have to overbuild local systems to accommodate a small window of peak energy use. 

“By pooling resources and being able to leverage the differences in season or supply and demand, our utilities are able to just keep the lights on and be more reliable,” Otto explained. “Having a bigger footprint is easier to balance than trying to stand on one leg. It also helps to integrate clean energy, including wind and solar, since those forms require the wind to blow and the sun to be shining. In the West, we have a lot of opportunity to balance a lot of solar availability in the Southwest with some amazing wind resources with the Northwest’s hydro system, for the benefit of consumers.”

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