When sitting with a client and reviewing options for securing the next contract cycle of power or gas, you cannot help but turn to the topic of how we got to where we are today after years of reasonably normal swings and cycles in the price of natural gas and electricity. Simply put, today’s energy market is far from optimal.
The insights outlined below track industry efforts over the past two decades to secure a strong and resilient position for New Englanders; one to weather the twin demons of fuel shortages and price spikes. While there have been valiant and responsible attempts to drive evolution, unfortunately most were thwarted. I believe any one of them, if successful, could have loosened the squeeze we are now experiencing.
ISO-NE: The Energy Epicenter for New England
The ISO New England (ISO-NE) campus in Holyoke, Massachusetts is the energy epicenter for the six-state New England region. ISO-NE is the electric grid manager, overseeing the instant-by-instant distribution of power from generation sources to the various local distribution companies (LDCs) where it is dispersed to end users. Personnel at the ISO are New England’s energy brain trust, keeping the lights on by maintaining the reliability of power 24/7/365.
As a consistent voice, ISO-NE has continued to rally for actions and remedies to alleviate the pressures that would lead to unaffordable prices, deficits in energy generation resources, and to the circumstances that have put us on the brink of double-digit prices for a dekatherm of gas. I commend ISO-NE for its insight and for calling attention to severe conditions.
Long before the ISO (Independent System Operator) was commonly known, it was the vanguard of the energy transition. During the 1990’s, the ISO oversaw the region’s shift away from a 50% dependence on oil and coal fired power generation. At the beginning of the decade (1990), 34% of generation was oil fired and 16% was coal. By the end of the first decade in the new century (2000), those percentages had been reduced to less than 1%, with natural gas and nuclear comprising most of the replacement fuel. New, highly efficient, combined cycle natural gas plants were easier to site, less costly to build and the region could tap into the newly discovered and abundant gas reserves in western Pennsylvania.
Despite a significant increase in power generation over those years, great progress was also made in reducing air pollution. From 2001 to 2012, emissions were down: SO2 by 92%; NOx by 66%; and CO2 by 21%. These reductions were due to fresh technologies deployed in the new natural gas plants, and improved emission controls on the remaining fossil fuel (Peaker) plants.
Regrettably, progress stalled in 2012/2013. It was evident in the prices. The average price of wholesale electricity rose to $56.06/MWh in 2013; up significantly from 2012’s historic low of $36.09/MWh.
“Natural gas is the predominant fuel used to generate the region’s electricity, at about 46% of total generation in 2013, so wholesale power prices tend to track the price of natural gas. In 2013, preliminary figures show that the price of natural gas averaged $6.97 per million British thermal units (MMBtu), up 76% from the 2012 record low price of $3.95/MMBtu.”
Natural Gas Scarcity Prompts Focus on Pipeline Infrastructure
Given the efficiency, clean burning, less polluting, and lower cost attributes associated with natural gas, it became immensely popular as a go-to generation fuel not just in New England, but anywhere in the country with pipeline accessibility to production fields. For the New England region, however, accessibility was a major obstacle.
Pipelines serving our region lacked cold season capacity to fully serve power plants and meet the demands of legacy residential and business consumers. As a result, natural gas availability to meet winter demands of the New England market became rationed by the pricing mechanism. The scarcity of natural gas is most pronounced during cold periods, and the consequential price spikes pushed the average spot price in New England to the highest in the country in 2013. This prompted government and political leaders to call for new pipeline infrastructure to serve the region.
“The wholesale price of power in New England’s competitive markets is based on input costs,” said Gordon van Welie, president, and chief executive officer of ISO New England. “Higher fuel prices result in higher power prices. New England sits on the doorstep of the Marcellus shale, which has increased supply and lowered natural gas prices significantly, at least in areas of the country that can access that gas. However, the limited pipeline capacity coming into New England means that sometimes natural gas-fired generators have difficulty getting fuel, and that not only pushes up prices, but it also creates a risk to reliable operation of the power system.”
At the time, the New England Governors recognized the crisis the region faced with wintertime energy scarcity and consequent price volatility. The Governors jointly advocated for development of a new natural gas pipeline infrastructure with investment, where needed, in new transmission infrastructure.Action on this commitment took the form of the Access Northeast Project. It was a shared effort by energy companies Spectra, National Grid and Eversource. Rather than adding a new pipeline, the plan was to upgrade and expand the capacity of the Algonquin pipeline within its existing footprint. The additional capacity was expected to add 925,000 Dth per day, sufficient for generation of 5,000 MW of electricity. Funding for the project was to have come from a pipeline tax to be assessed electric ratepayers who would reap benefits from the additional natural gas to fuel power plants.
In late 2016, however, the Supreme Judicial Court of Massachusetts rejected the funding plan which derailed the project and others that had relied on the same funding mechanism.
Another project to alleviate New England’s energy fuel shortage, Kinder Morgan’s Northeast Direct pipeline, a $3 billion, 188-mile extension into New England from upstate New York was cancelled in March 2016. This line was expected to come online in November 2018 and would have carried 2.2 BCF (Billion Cubic Feet) per day. The company cited low natural gas prices, current market conditions, and counterparty financial instability as reasons for cancellation.
And yet another proposed pipeline, the Constitution, figured prominently in the region’s plan to alleviate the worsening capacity shortfall. It would move 650,000 mcf/day from the Appalachian basin to existing Iroquois and Tennessee pipelines in New York thus growing the gas volumes reaching New England. Unfortunately, it was denied certain key permits and licenses by the state of New York which has long had politically based antipathy for natural gas projects.
While the New England region grappled with strategies to bring in more natural gas, to both alleviate recurring winter shortages and replace the 3,300 MW of power generation that retired between 2011 and 2013, it also encountered rising emissions from power generation units that had to run more often to make up for decreased natural gas fired generation and serve weather related peak demand.
Impact of Generation Facility Retirement Infrastructure
The deficit was further aggravated by the 2014 retirement of the 600 MW Vermont Yankee Nuclear Power Station, one of the region’s largest zero-emission generators. Then, in 2015 the Pilgrim Nuclear Power Plant in Massachusetts, another of the region’s largest generators at 677 MW, announced it would close by mid-year 2019.
The loss of a generation unit creates an imbalance between the region’s ongoing power appetite and the ability of ISO-NE to manage around the deficiency until replacement power sources are installed. A further challenge is achieving coincident goals on emissions reductions when replacement power sources are deployed. It is extremely hard to do when a non-emitter nuke plant is retired.
How much have we, in New England, paid for the premium prices (in winter) — payments that could have gone towards clean energy power plants or new pipeline capacity that would have been permanent additions to our infrastructure?
Natural gas is the predominant fuel used to generate the region’s electricity; hence wholesale power prices tend to track the price of natural gas. In price favorable cycles, mild weather leads to lower natural gas prices with the opposite being true during periods of harsh weather. One such example in 2013, the price of natural gas averaged $6.97/MMBtu, up 76% from the 2012 record low price of $3.95/MMBtu.
How does this translate in terms of aggregate cost?
The higher energy price pushed the total value of the region’s wholesale energy market to approximately $8 billion in 2013, a 54% rise from the $5.2 billion value in 2012. This nearly $3 billion premium can be viewed in a vastly different way. In one season, barely more than 25% of the year, consumers in New England collectively footed the bill for what could have funded the Kinder Morgan Northeast Direct pipeline.
Other projects, coincident with the proposed natural gas pipelines, sought to address concerns about the dominant fossil fuel presence in New England’s power generation portfolio. Foremost among them was a 2011 Eversource-Hydro Quebec collaboration, Northern Pass. This $1.6 billion undertaking would have plugged 1,090 MW of hydroelectric power from Quebec into the ISO grid. Battles ensued over the route, embracing the above versus below ground costs and unending litigation from the opponents to block the project. In the end, political pressure succeeded in preventing the project from being permitted.
A second major project, the New England Clean Energy Connect (NECEC), is still alive and which, if completed, would be the largest clean energy project in New England. It consists of 145 miles of new transmission line conveying 1,200 MWs of hydroelectric power from Quebec into the ISO grid in southern Maine, and sufficient to meet the demand of 1.2 million homes. Again, the attributes are reduced energy costs, enhanced reliability, and reduced emissions of greenhouse gases. More specifically, NECEC is projected to reduce regional carbon emissions by 3 to 3.6 million metric tons annually, equivalent to removing 700,000 cars from the road each year.
The grandfather of proposed clean energy projects in New England, without which any discussion of efforts to advance beyond the fossil fuel era would be woefully incomplete, is the Cape Wind Associates (CWA) project. It began in 2001 with an application to the Army Corps of Engineers. CWA proposed a wind energy facility in Federal Ocean waters near Nantucket Sound with a nameplate capacity of 468 MW. Plans for the electric output would have satisfied 75% of the electricity needs of Cape Cod and the Islands of Martha’s Vineyard and Nantucket. This was to have been North America’s first wind farm, but in December 2017 the projects owner, unable to overcome opposition from residents of the islands and Cape Cod, declared it dead.
As of this writing, the only offshore wind facility in US waters is a 30 MW project off the coast of Rhode Island. There are countless other, smaller territorial wind projects throughout the unsettled parts of Maine, Vermont, and New Hampshire that never got off the ground because of local opposition to these projects.
Where Are We?
New England is woefully behind where it needs to be in electric energy adequacy. The math, recounted above, tells the story. At every turn, it is behind its energy transition timelines in an array of key areas.
Each of the projects described above would have given our region significantly more yardage in our companion quests to diversify our fuel sources, reduce offensive emissions, and further decarbonize the power sector.
The ISO has been the incubator for the myriad proposals and projects advanced over its 20+ years of championing its mission; to oversee the provision of reliable power at least cost. It is currently dealing with retirements, creating a gap in resources that can be reliably deployed during the high stress winter weather cycle.
Natural gas fired generators will be price rationed for fuel this winter, and for winters to come, until this problem is solved. Electric customers in New England can expect more price spikes that will resemble past winter surges with those payouts solving only the immediate need to cover one’s current power bill.
In New England, I believe we will be forced to turn on semi-retired, oil-fired plants to meet our power needs for this winter and those in the future. This will re-introduce SO2, NOx, and CO2 emissions that had previously been eradicated. The renewable, green energies that were portrayed as the solution to exiting the fossil fuel era are not anywhere near the ready position to replace our dependence on the existing natural gas and coal fleet.