New England’s energy brokers must look beyond natural gas
SNOW WASN’T the only thing piling up this winter: Massachusetts ratepayers also saw a bump in their electricity bills as New England’s aging infrastructure struggled to keep up with demand. The rate increase wasn’t a surprise. But the reasons why the prices rose — and the reasons why they are expected to rise again in the coming years — offer important lessons to lawmakers and regulators about how to ensure reliability and protect Massachusetts residents from future price hikes.
This January, electricity prices for NStar customers rose 29 percent compared to the last year. (NStar is now called Eversource Energy, after a merger with Northeast Utilities.) National Grid customers saw a 37 percent increase over last winter. The reason is simple: New England is overly reliant on natural gas for electricity, and demand for natural gas tends to spike in the winter as power plants compete with home-heating furnaces for fuel.
Solving this problem will require expanding the region’s gas infrastructure. The question is whether the best way to do that is to build a new pipeline — as the Houston-based energy company Kinder Morgan is proposing to do — or to expand existing routes to accommodate more gas. Massachusetts should also expand its incentives for energy efficiency. If the Commonwealth requires less gas for home heating, then more of the fuel will be available for energy generation.
Improving the region’s gas infrastructure, however, is a short-term fix. New England’s over-reliance on the fuel for electricity generation puts ratepayers at the mercy of fluctuating gas prices, and the problem will only get worse as older power plants close in the coming years. New England’s challenge is in ensuring that plant retirements don’t put the reliability of the grid at risk, and that the gap between supply and demand is plugged responsibly.
Protecting reliability is the job of ISO New England, a non-profit organization that runs the region’s grid and wholesale energy market. One of the ways they do so is by holding auctions to set a baseline price for future generation. These forward-capacity auctions ensure that there will be enough energy to meet projected demand. For much of the last decade these costs have been low, but, over the next five years, 3,500 megawatts of power — or more than 10 percent of New England’s energy — are expected to come off line. That news caused forward-capacity prices to jump.
After the eighth auction, held in February 2014, capacity payments rose from around $3 a kilowatt month to $7 a kilowatt month. In the ninth auction, the price in Rhode Island and Southeastern Massachusetts rose to over $11 a kilowatt month. These increases will only kick in during the summer of 2017, and they won’t be overly burdensome for ratepayers — each jump only translates to a small monthly bill increase for most homeowners. However, the higher rates tell energy companies that they can make a profit in New England — and already natural gas providers are scrambling to enter the market. For example, the proposed Towantic Energy Center, a gas-fired plant to be built in Oxford, Conn., is expected to come online in 2018 and produce more than 800 megawatts.
But allowing natural gas plants to plug the gap would only expose businesses and residents to more price hikes. A better approach would be for the region to aggressively pursue renewable energy. Maine is experiencing a boom in investment in wind power — according to the ISO, over 3,300 megawatts worth of new wind farms has been proposed in the Pine Tree State. And beyond the country’s northern border are massive Canadian hydroelectric dams that can help power the New England grid. The trick is getting the energy to southern New England. The most controversial plan to do so is Northern Pass, a $1.4 billion plan put forward by Northeast Utilities to build a transmission line through New Hampshire. But there are at least four other projects that could prove less contentious to build.
New England needs one of the projects, sooner rather than later. This winter has shown New England lawmakers just how vulnerable the regional electricity grid is to fluctuations in natural gas prices. That’s all the more reason for state governments from across the region to make an aggressive push for green energy.