State shouldn’t pursue hydropower from Quebec
In recent months, considerable attention has been paid to the possibility of Massachusetts and the other New England states contracting to buy hydroelectric power supply from Eastern Canada. Endorsing this view, a new bill — the “Clean Energy Resources’’ bill — was recently introduced in the Massachusetts Legislature.
I wish I could agree with the proposed policy, because it sounds so appealing and because I so strongly agree with the importance of moving toward electricity supplies with lower carbon emissions. In fact, I recognize that hydropower from Eastern Canada may have value for Massachusetts under some circumstances. But unfortunately, this particular bill is too much, too fast, too costly, and too risky for the state’s consumers.
The bill would require the state’s electric utilities to solicit power from large hydro and renewable energy resources. The solicitation would be for 20-25 years’ worth of power in an amount equivalent to one-third of Massachusetts’ total electricity use. The bill lays out a complex procedure and would rush the solicitation to occur by the end of 2014.
Such a new contract would be underwritten by the state’s electricity consumers, shifting the risk of power supply to them even though the state previously declared such risks to be borne by suppliers and not ratepayers, as part of the reasoning for the state’s restructuring of its electric industry a decade and a half ago. This would reverse that policy — something that seems ill-conceived at a time when electric consumers are already finding it attractive to generate power locally on their own premises. The risk-shifting that underpins this bill’s approach would create powerful incentives for some customers to go off grid, leaving the rest to pick up the costs.
Indeed, there’s no reason to believe that Eastern Canadian hydropower will be “cheap,” as some have suggested. The economic interest of a provincially owned Eastern Canadian electric utility (like Hydro Quebec and Nalcor) is, understandably, to provide value to its parent (the Province of Quebec, or Newfoundland and Labrador) more than to New England consumers. Hydro Quebec and Nalcor would be foolish — and a bad business partner for their shareholders — to sell the power at anything but the going price of electricity. At the average price of power in 2013 (around $55 per megawatt-hour), the contract would be over a billion dollars a year to buy at least 18.9 million megawatt-hours a year.
Plus, providing a commitment to provide at least one-third of Massachusetts’ electricity needs for 20-25 years will likely require that those Eastern Canadian utilities add new hydroelectric dams to ensure the capacity is available for export over that entire period. The price offered to Massachusetts would have to reflect such investment costs (and are not likely to be supported by the $1 billion annual cost mentioned above). Moving that much power into the New England grid would also require substantial investment in electric infrastructure, adding further to the price tag (even if it isn’t directly reflected in the contract price, but rather through higher transmission rates paid by consumers). For example, the estimated price tag for one of the proposed transmission lines (Northern Pass) is over $1 billion, which would be on top of the energy contract price. When considered in total, the costs of the power and the transmission delivery will not come cheap for Massachusetts consumers.
I know that Massachusetts is looking for ways to reduce reliance on natural gas to generate electricity, and to lower carbon pollution from power plants in the state and region that supplies our electricity. However well-intentioned those goals are, this bill is not the way to accomplish them. It will lead to unintended, adverse consequences because it will send dollars out of the region and undermine the overall competitive market framework on which power generation is supposed to take place in the region.
The enormous size and long length of the contract combined with the speed with which such a large supply source would be procured is unprecedented in the state. This amount of power is not needed in the region at this time, and the bill — if enacted and implemented — would send the signal to private investors that Massachusetts is willing to rush to enact and implement public policy that fundamentally changes the rules of the game in one short six-month period. There is no transition accommodated by this approach.
Local power plant owners — some of whom also provide significant quantities of power with no or little carbon pollution – have invested tens of billions of dollars here for the right to compete to serve consumer electricity demand reliably and efficiently, while driving dramatic reductions in emissions. Those power generators would be right to complain that this bill would undermine the overall investment climate to the detriment of consumers, as well as their own companies.
The most cost-effective way to meet the state’s carbon emissions targets is through non-discriminatory regulations that allow any resource that can qualify to compete. This is the hallmark model that has been used in virtually every successful emissions market in the world, including the Regional Greenhouse Gas Initiative that all New England states participate in today. This particular bill makes a giant step in the other direction. This bill is not the path forward.
Susan Tierney is a managing principal at Analysis Group in Boston. A former assistant secretary for policy at the US Department of Energy and state secretary of environmental affairs, she is working with the New England Power Generators Association.