CATF wants states back in the procurement business

The states that restructured their power markets spent two decades trusting prices to call the build. A new report from the Clean Air Task Force argues that prices were not designed to do the hardest part of that job, and that states should rebuild the long-term planning function that restructuring removed, without going back to vertically integrated utilities.

Covered by Utility Dive, the report narrows in on a specific gap: nuclear, geothermal, offshore wind and long-duration energy storage share long lead times and development obstacles that are not principally about cost. In deregulated states, the report concludes, clean electricity standards and market prices neither provide sufficiently robust long-term forward prices nor solve those non-cost barriers.

Spokas, quoted in the coverage, traces the problem to restructuring itself, which removed much of the long-term planning and replaced it with market incentives. Two decades on, he said, those market structures were never tested for significant periods of load growth, the power system is very different from the one in place when deregulation happened, and grid congestion is much higher than it was then. Those are barriers that sit in front of the revenue line, which is why a capacity price does not clear them.

The proposed remedy has three parts: periodic, scenario-based assessments of long-term system needs, technology development roadmaps, and development mandates or state-led procurement. It points to California, New York and Illinois as states without vertically integrated power markets that have nonetheless pursued state-led planning, and singles out Illinois' Clean and Reliable Grid Affordability Act, which took effect in June, as model legislation formalizing the approach.

For anyone deploying capital, the first two components produce documents and the third produces a contract, and that difference carries more weight than the report's framing lets on. State-led procurement is how political will becomes a counterparty — a named buyer, a defined term, a credit behind it — the piece merchant markets have not produced for assets whose construction starts years after the visible price curve runs out, which is the report's own diagnosis. As a result, the financeable asset in a nuclear, geothermal or offshore wind pipeline is the award rather than the site, which puts a state procurement calendar on the same footing as an interconnection queue position in deciding what gets built.

The transition trade has split, as this publication has argued: firm, dispatchable capacity and grids attract the premium while merchant renewables carry the discount, and the technologies CATF is worried about stand on the discounted side. The reason is less about cost than about the absence of a counterparty at financial close, the unpriced-deal problem this masthead has been tracking across energy platforms. In that light, the report is a proposal for naming the buyer before the steel goes up and for using a state's procurement authority to do it.

Illinois matters more than the roadmaps: Spokas describes the state as doing this live over the course of a year or so, expects lessons at the end of this year and perhaps halfway through the next, and reads the process so far as positive. The first procurement round is the test: whether awards emerge as contracts a lender will take, and on what terms. If they do, the template is real and portable; if they emerge as conditional commitments, states that copy the statute will have copied the paperwork.

New York is the harder case and the one the report has to answer, because offshore wind cancellations and delays have left the state struggling to meet its clean energy goals. Spokas acknowledged those cancellations as development occurring outside a state's control while arguing that more planning would allow a comprehensive assessment of different future scenarios and mitigation against different risks; scenario work can rank risks, but it cannot keep a developer from walking away from a contract. Our own reporting has followed Albany's nuclear push after Indian Point, which turned the loss of the state's largest carbon-free generator into a gap that better planning is meant to forecast and cannot prevent.

The three components are not equal in force, which matters to anyone underwriting the outcome. Assessments and roadmaps obligate no one in particular; mandates and procurement obligate a state, which makes them politically expensive and the only parts of the proposal that change what can be financed. A procurement program is also only as durable as the legislature that funds it, and no session can bind the next. That risk is already in the price of policy-driven revenue, and a better-designed program does not remove it; it relocates the question from the regulator to the appropriations committee.

Spokas expects the Illinois lessons to land at the end of this year and perhaps halfway through next, and the number worth reading then is the term and the counterparty credit on whatever the state awards, rather than the megawatt target.