Long‑Term Power Procurement in an Era of Rapid Market and Technology Changes

How Utilities Can Navigate the Challenges of Long-Term Resource Commitments

Understanding the Challenges of Long-Term Decisions

Utilities face immense pressure to make long-term decisions, often locking up hundreds of millions of dollars in generation assets. These assets are designed to operate for decades. However, the rapid changes in technology, policy, and climate politics can render these investments as stranded assets long before their expected lifespan.

We expect utilities to make 20+ year decisions as if it were still 20 years ago, with stable rules and predictable technology roadmaps. But how can they make optimal multi-decade resource commitments when technology, regulation, and energy markets evolve so quickly? For instance, consider the shifts in energy storage technology, falling battery storage costs, expanding regional markets, new transmission paths, and changing capacity accreditation across technologies.

The Importance of Flexible Decision-Making

The key to navigating these challenges is to structure flexible, risk-managed decisions. Instead of striving for a single, perfect procurement portfolio at one moment in time, utilities should focus on embedding optionality into their long-lived commitments. This approach applies to power purchase agreements (PPAs) and new build assets. By allowing for regular recalibration, these commitments can stay aligned with evolving policy and reliability requirements.

Structuring Flexibility and Optionality into the Process

Using scenario planning is pivotal for building multiple internally consistent futures. This includes high battery energy storage system (BESS) penetration, slow evolution of the Energy and Demand Allocation Model (EDAM), and tighter Qualified Capacity Criteria (QCC) rules. Testing portfolios against various scenarios, rather than a single or small set of base cases, enhances robustness.

We should prioritize portfolios that perform acceptably across several scenarios over those that are optimal in just one forecast but fragile to change. It's crucial to lock in only what must be long-term, such as certain capacity and renewables contracts. The rest of the agreements should be shorter in tenor or include options for change.

Where feasible, we can combine shorter (5–10-year) PPAs, tolling agreements, and capacity contracts with a limited number of 20–25-year commitments. Designing contracts with flexibility is essential. This includes re-opener clauses, technology refresh options, and indexation tied to evolving QCC rules or market constructs.

Embracing Modular Solutions

Favoring modular storage projects and renewables that can be expanded or repowered is a wise strategy. This approach stands in contrast to relying on single, large, non-scalable assets.

Demand Response programs exemplify flexibility. They are often structured as short-term contracts of 3, 5, or 7 years. These programs possess built-in abilities to pivot and adapt as scenarios change or assumptions are tested through program design.

Navigating Regional Markets and Portfolio Model Changes

In addition to technology changes, we must design for market agnosticism. Building portfolios that can function under EDAM, Markets+, bilateral structures, or adjusted resource adequacy/QCC frameworks is vital. We should give weight to resources likely to retain RA/QCC value under evolving counting rules. This includes firm interties and high Effective Load Carrying Capability (ELCC) resources in constrained areas.

Finally, we must explicitly model changes in RA rules, QCC methods, and carbon policy as risk factors. This proactive approach helps us stay ahead of potential challenges.

Performance Monitoring: A Continuous Process

Performance monitoring transforms long-term procurement into a series of controlled, evidence-based course corrections. Instead of viewing it as a one-time decision that ends upon contract execution, we should link what was planned—cost, reliability, decarbonization, and flexibility—to what is actually happening in markets, on the system, and in contracts.

Developing triggers, metrics, and reporting on procurement decisions is essential. These elements help organizations measure, learn, and re-steer as technology, markets, and models evolve.

We should define clear triggers, such as market shifts and cost breakthroughs, for adjusting contract terms based on the flexibility built into the contracts. For each major resource type—BESS, solar, wind, thermal—we need to define metrics to monitor. These metrics might include availability, forced outage rates, real versus expected ELCC, actual versus contracted output, and market revenue by product.

Assigning responsibility for summarizing market and policy changes periodically is crucial. This summary should map back to portfolio impacts and potential procurement pivots. We can develop a concise scorecard for leadership and regulators, showing how the portfolio tracks against cost and reliability expectations. It should also outline corrective actions planned where deviations occur.

Iterating for Improvement

Evaluating portfolios against the triggers and defined metrics allows for course correction. Each procurement cycle serves as an opportunity to iterate and improve the decision-making process.

The best long-term decisions in a rapidly changing environment leave room for error regarding technology specifics while maintaining a reliable, compliant, and reasonably priced portfolio.

By embracing these strategies, we can better navigate the complexities of energy procurement. This approach will help us manage the increasing demand for electricity effectively.

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