Wholesale electricity costs won’t stay low forever
It’s clear we need to expand natural gas pipeline capacity and import large-scale hydroelectricity from Canada
This winter’s wholesale electricity costs haven’t reached the historic levels seen during the 2013-14 winter, but that doesn’t mean that all is well with New England’s electricity markets. We still have the highest regional electricity costs in the United States, and impending capacity shortages will be a challenge to policymakers for years to come.
ISO New England has repeatedly warned that 8,000 megawatts (25 percent) of New England’s electricity capacity has either retired or is “at-risk” of retiring. The region will be challenged to meet its 2020 Installed Capacity Requirement (ICR) without new resources or the repowering of mothballed plants.
More importantly, ISO’s calculations don’t include the Pilgrim (Massachusetts) or Millstone (Connecticut) nuclear plants, which represent an additional 2,500 MW that some experts have considered to be at risk of closing.
How did we get here? Over the past 15 years, New England has implemented shortsighted electricity policies that have led to a hodgepodge of mandates and regulations that favor renewable energy generation and state-decreed long-term contracts between electricity suppliers and renewable electricity generators.
A significant factor in the premature closing of Vermont Yankee nuclear plant was the continued expansion of renewable portfolio standards and the purchase power agreements that accompany them. Add that to the federal production tax credits that benefit wind farms, giving them a $50/MWh head start on their competitors in the marketplace. This allows them to submit negative bids into the market, artificially depressing prices, which provides short-term savings but ultimately leads to more base load retirements and long-term pain for ratepayers.
Why have electricity prices not reached the historic heights of last winter?
First, it has not been as cold this winter and this has put less pressure on electricity demand. Second, and more importantly, we have had an increase in liquefied natural gas imports, mainly due to the inclusion of LNG in the Winter Reliability Program.
The Winter Reliability Program was implemented last winter (without LNG) and was largely responsible for keeping the lights on during last winter’s cold snap — and has played a similarly important role this January.
But is this a long-term solution? While the program has kept the lights on and the influx of LNG supplies have suppressed prices this winter, it would be foolhardy to depend on LNG imports as a long-term solution to future electricity supply shortages. Should global LNG markets change with other countries like Japan or Korea offering higher prices, we will likely see a return to the volatility that hammered our electricity markets last winter.
This winter’s lesson is clear. Expanding natural gas pipeline capacity is a must to lower electricity costs in New England, as is importing large-scale hydroelectricity from Canada. Both can be done without ratepayer subsidies or any legislative actions that will increase costs to ratepayers.
When faced with policy decisions, our elected officials need to answer one simple question: Will passing this bill raise the cost of electricity? If the answer to that question is yes, then their vote on the bill needs to be no.
Until that happens, we will continue to lose jobs to other parts of the country. For those who disagree, maybe you should speak to the thousands of out-of-work millworkers in Maine or machinists in New Hampshire and hear what they have to say.
Marc Brown is executive director of the New England Ratepayers Association.