Grid reliability challenges, emission increases and price spikes
ISO New England, the operator of the region’s power system, recently announced that electricity supplies should be sufficient to meet the region’s demand for electricity this winter barring “unexpected resource outages or fuel delivery constraints.” For those who expect affordable, reliable electricity 24/7, this should be a cause for concern.
Natural gas generates about half of the region’s electricity. It is also used to heat about 40 percent of all households and remains the heating fuel of choice for new homes in New England. In addition, some 260,000 businesses and manufacturers rely on natural gas for industrial processes and space heating.
While the region’s demand for natural gas has increased substantially, natural gas infrastructure has not kept pace. Pipeline constraints during cold weather contributed to more than $7 billion in higher energy costs over several recent winters as the system struggled to meet demand from both space heating and power generation customers.
This winter, ISO has identified about 3,450 MW of natural gas-fired generating capacity (about a quarter of the total) that may be at risk of not being able to get fuel this winter.
To make sure the lights stay on, ISO has instituted for the fourth year in a row a “winter reliability program,” which pays power plant owners to buy and store oil or liquefied natural gas (LNG) as a back-up if natural gas-fired plants can’t get enough fuel during the winter. At a cost of $38 million last year, these measures are essential to ensure reliability, but they are limited, potentially costly short-term fixes.
LNG imports supply about 30 percent of the region’s peak winter day natural gas requirements. Since LNG is traded globally, pricing varies and can be expensive. It is also transported from foreign countries to New England by tankers – which can be delayed in severe weather, making price and availability uncertain.
Burning oil is also costly and jeopardizes the significant progress the region has made in reducing carbon emissions from electricity generation, which are down 26 percent since 2000.
Even with winter reliability measures in place, ISO notes emergency procedures may be needed to maintain reliability under a combination of extreme cold, power plant outages and limitations on natural gas delivery.
Beyond this winter, the situation is expected to become more uncertain in the spring as the region will lose 1,500 MW of coal and oil-fired generation. It will be replaced primarily by new gas-fired generation despite lack of additional natural gas infrastructure. ISO has warned that the operating situation is “precarious” and may be “unsustainable by 2019” when options to maintain reliability will become even more limited.
On a positive note, the recently completed Algonquin Incremental Market (AIM) Project will bring additional natural gas from the Appalachian Basin into New England to help meet winter demand. However, the project’s customers are not power plant operators but local gas companies serving homes and businesses.
More pipeline capacity for power generation is needed to ensure delivery year-round. According to ISO’s 2016 Regional Electricity Outlook, it will take a combination of pipeline, LNG and storage solutions to address both reliability risks and price volatility.
New England’s recent energy policymaking has focused on reducing climate change impacts spanning decades. Much less attention has been paid to the challenges facing the region in the next five to ten years when power plant retirements and lack of new infrastructure portend even higher costs, more price volatility, reduced reliability – and significant lost opportunities for economic growth.
Not only does failure to address these challenges threaten regional economic competitiveness in the near-term, it undermines the region’s ability to attract energy-intensive advanced manufacturing companies in highly specialized industries such as life sciences, medical devices, aerospace, semi-conductors and nano-technology. Those companies will look elsewhere unless their concerns about energy prices are addressed. As the New England Council cautions in a comprehensive report on advanced manufacturing, “…these challenges have costly implications….”
ISO is doing what it can within its mission, but ISO alone cannot solve this problem. Only broad recognition and action to support an all-resource approach to meet future energy needs can – including natural gas for power generation, as well as expansion of wind, hydro and solar power.