ON THE FACE of it, New England’s power system is in good shape. Over nearly two decades, the region’s competitive wholesale electricity markets have attracted investment in the power plants and demand-side resources needed to meet consumer demand.
Upgrades to the region’s high-voltage transmission system have vastly improved reliability, allowing power to move freely around the six states, expanding access to electricity from the lowest-priced power plants, and enabling old, inefficient power plants to retire. The retirements of old coal- and oil-fired generators and the increasing use of natural gas to produce electricity have significantly lowered generator emissions over the past decade.
Because of the investment in power plants and transmission, New England has not experienced widespread blackouts or controlled outages since 1965. Near-record-low wholesale electricity prices have resulted from recent mild weather and extremely low natural gas prices, and a competitive market that selects the lowest-priced resources needed to meet demand.
However, the power industry is undergoing a profound transformation. A hybrid power system is starting to take shape in New England with three major elements: Renewable resources, distributed generation and demand resources at customer sites, and a fleet of fast, flexible natural-gas-fired power plants to back up wind and solar resources. The New England states’ environmental and clean energy goals are one driver of this transformation, producing immense growth in solar panels at customer sites, energy-efficiency measures, and proposals for wind farms.
ISO New England has a front row seat on this transformation. The ISO keeps the power flowing in New England by managing the power grid, administering competitive wholesale electricity markets, and conducting long-term planning. The ISO is independent, fuel- and technology-neutral, owns no generators or transmission lines, and makes no money in the electricity marketplace.
The ISO has been preparing for the new order, but looming challenges could derail the region’s progress toward a hybrid power system that provides competitively-priced, reliable, and clean electricity.
Gordon van Welie
The first challenge is the lack of adequate fuel infrastructure in the region, particularly infrastructure to serve New England’s natural-gas-fired power plants. Over the past two decades, the number of power plants using natural gas has increased dramatically—nearly half of the region’s fleet uses natural gas as its primary fuel—while investment in the underlying fuel delivery infrastructure has not kept pace. During cold snaps, the region’s natural gas infrastructure can’t deliver sufficient fuel for both heating and power generation. Instead, the region relies on nuclear and coal- and oil-fired power plants to keep the lights on—but those generators are closing or at risk of retirement due to low wholesale electricity prices.
The region’s reliance on natural gas will only intensify. Natural-gas-fired generation makes up half of proposed power plants. While some argue that the region is too dependent on natural-gas-fired power plants, the future hybrid power system will require reliable, flexible back-up power—exactly what efficient natural-gas-fired generators provide.
To ensure power is available during the winter, ISO New England has incentivized generators to add dual-fuel capability—the ability to burn oil stored onsite if they can’t get delivery of natural gas. Having back-up fuel on hand is great insurance for power system reliability, yet oil produces higher emissions, and environmental and siting regulations are imposing greater limitations on existing and new oil generation. That will reduce the region’s ability to rely on oil as a back-up fuel.
Second, wind farms are a small and growing part of our fleet, but onshore wind facilities in northern New England also face a big infrastructure obstacle—the need for extensive and costly transmission expansion to deliver power from their remote locations to cities in southern New England. Bringing hydro energy from Canada will also require significant transmission expansion. Offshore wind farms are more costly than onshore wind, but require less transmission.
Third, the competitive wholesale marketplace has brought much-needed investment in power plants in New England. However, these markets are vulnerable as states seek to advance clean energy development using contracts and incentives outside of the wholesale marketplace. Depending on how they are structured, government subsidies for clean energy will have unintended consequences: market prices that are lowered by subsidies may not be sufficient to keep existing power plants in operation and investor uncertainty could dampen new development, ultimately undermining resource adequacy.
ISO New England is responsible for managing the power system affected by this changing landscape, but can’t require investment in fuel infrastructure. The ISO’s role is limited to developing market incentives to induce generator owners to ensure they have fuel.
The challenges outlined here, plus the ISO’s independent natural gas infrastructure studies, plus the ISO’s actual experiences operating the power grid in recent winters, lead to the unavoidable conclusion that New England needs more fuel infrastructure to ensure a reliable power system.
Additional fuel infrastructure could come in the form of greater pipeline capacity, liquefied natural gas (LNG) storage combined with forward contracts for LNG delivery or, alternately, dual-fuel power plant capability—with emissions permits that allow extended run times on oil. The high-voltage transmission network will also require expansion to reach clean energy sources. But given the difficulties in building infrastructure in New England, the ISO is not optimistic that sufficient infrastructure will materialize in time.
The key to long-term independence from natural gas and oil is renewable energy in combination with grid-scale electricity storage, but at a level that will not be economically or technically feasible for many years. This transition will take decades, it will be challenging and costly, and it will require regional collaboration. In the meantime, there is no alternative but to depend heavily on fossil fuels and the remaining nuclear plants.
To address the challenge to competitive markets, the states, the organization representing market participants (NEPOOL), and the ISO are mulling how to accommodate the states’ clean energy requirements in the competitive market structure, but those solutions also are probably several years away.
Until large transmission lines are built to reach hydro and wind resources, and unless additional fuel infrastructure is added to meet the ever-increasing demand for natural gas to heat homes and businesses and to generate the power that lights those homes and businesses, we see a future with challenges that may require the ISO to employ suboptimal solutions.
The time is fast approaching when the region’s fuel infrastructure constraints and continued non-gas power plant retirements may push the ISO to further strengthen market rules to incentivize generators to contract for fuel infrastructure. Other steps the ISO could take to ensure reliability during the winter could include—as a last resort—trying to stop some non-gas power plants from retiring. The measures required to ensure fuel security or induce generators to postpone retirement will be costly. Progress on lowering emissions may falter due to increased dependency on oil, and the region should expect significant energy market price volatility when natural gas pipelines are constrained.
The ISO is supportive of the states’ environmental and clean energy goals, and has developed many operational and market solutions to accommodate renewable resources and emerging technologies. Additional solutions will be needed to ensure reliability through the wholesale markets. However, the region’s fuel infrastructure needs have the potential to seriously affect ongoing power system reliability and impede the efficiency of the wholesale markets that have brought the regional system this far. The ISO will continue to strive for a reliable power system through competitive markets, while seeking solutions that are compatible with state environmental requirements.
Gordon van Welie is president and CEO of ISO New England Inc. ISO New England operates the six-state power system and oversees the region’s wholesale electricity marketplace.