Newly Released ISO White Paper Confirms the Value of Renewable Energy in New England Wholesale Electricity Markets

Jun 11, 2015 by  | Bio |  1 Comment »

ISO-NE, the nonprofit entity that runs the New England electricity grid, is circulating a 12-page White Paper on (in the ISO’s words) how “To Ensure Reliability as the Grid Adapts to a Renewable Energy Future.”  In a memorandum accompanying the paper, the ISO says that it is hoping to stimulate a broad discussion on the paper at meetings of stakeholders and regulators this month.

You can read background on what the ISO is and what it does, here.  And you can read the full ISO White Paper, here.

The ISO’s White Paper is both interesting and important.   As the title of the document makes clear, the entire paper is about the impact of and the importance of renewable energy in the wholesale electricity markets.  Of course, environmentalists and renewable energy developers have been discussing the importance of renewable energy for years.  So, it is nice to see that several of the things we have been saying are now receiving confirmation from the operator of the New England electricity grid!

I.  Renewables Are Going To Lower Electricity Clearing Prices in New England. For years the overall structure of the public debate about renewable energy has been that environmentalists argue that we need renewable energy to avert a climate-change disaster, while consumer advocates sometimes argue against paying a premium for the environmental benefits of renewable energy.  Now the debate is changing.  As I pointed out in a blog last year, renewable energy resources are now bringing down the cost of electricity for customers.

The just-released ISO White Paper confirms that what CLF and other environmentalists have been saying about this is true.  Specifically, the ISO says:

  • “State subsidies for renewable resources will put downward pressure on energy-market prices . . .” [Page 1, ¶ 2.]
  • And this: “Additional renewables are expected to decrease wholesale electric energy prices . . . .”  [Page 1, ¶ 3, emphasis supplied.]
  • And this: “As the penetration of wind and solar resources grows, the price-reducing effects of renewables on electric energy prices will increase.”  [Page 3, ¶ 5.]

The paradigm is changing.  Where once it was thought that customers would have to pay more for renewable energy, it is now widely understood that renewable energy is working to drive down electricity costs in New England.  And the important thing is that it is not the environmentalists that are saying this; it is ISO-NE, the entity that runs the electricity markets that set prices for all electricity customers in New England.

II.  Clean, Low-Cost Renewables Are Going to Drive Coal, Oil, and Nuclear Out of the Market.  This is another point that environmentalists have been making for years – and, here, too, it is wonderful to see the ISO confirming what we have been saying all along:

  •  Wind and solar will “in turn increase the financial pressure on . . . nuclear and coal.”  [Page 3, ¶ 5.]
  • “The addition of large quantities of renewable resources . . . will affect what resources retire . . . and not all resource types will be affected equally.  New England has already experienced a number of retirements of coal, oil, and nuclear units in recent years . . . . With the expected increased penetration of renewable resources, more such retirements should be expected in the future.”  [Page 7, ¶¶ 3, 4, 5.]

Points I and II, taken together, mean we are going to get a cleaner environment with less carbon pollution – and at a lower cost to electricity customers.

III.  New England’s Forward Capacity Market is Working the Way It Was Meant to Work.  There is another consequence of the large number of “retirements” of coal, oil, and nuclear power plants in New England:  the clearing prices in the last two “Forward Capacity Auctions” in New England (specifically, for FCA-8 in February 2014; and FCA-9 in February 2015) have been higher than the clearing prices for prior auctions run by ISO-NE.  (For background on what these capacity auctions are, and how the capacity market relates to the electricity market, read this.)   The fact of higher auction clearing prices in the last two auctions shows that the ISO-run Forward Capacity Market (FCM) is working properly, and in exactly the way it was designed to work and meant to work.  The FCM was carefully designed specifically to send appropriate price signals to create the proper economic incentives for the entry of new generation resources into the market when those resources are needed.

The reason that the first seven Forward Capacity Auctions (2007 through 2013) cleared at very low prices is that, back then, there was excess generation capacity in New England; thus, there was no need to incent new generation to enter the market.  The reason that the last two FCAs cleared at relatively higher prices is that the dirty old coal, oil, and nuclear plants are retiring; thus, the auction is sending the very price signals that it was designed to send and meant to send:  for new generation capacity to enter the market.  As I discussed in a blog post a few months ago, the capacity market is working the way it was meant to work.  And that conclusion is confirmed by the  ISO’s White Paper, on pages 8 through 12.

Summing It All Up:  ISO-NE runs the entire New England electricity grid in real time, and also runs the wholesale markets that determine the price of electricity for all customers in New England.  CLF has been working for years to push the ISO to more fully integrate renewables into the New England electricity grid and compensate renewable generators more fully for their contributions to the grid.  The underlying themes of the just-released ISO White Paper are about the impact and importance of renewable energy in the energy and capacity markets.  This is a big deal.  The ISO is recognizing – and not tacitly, either – the increasing importance of renewable energy in the New England wholesale electricity markets!

In a very real sense, this newly released White Paper is a validation of work that CLF has been doing at the ISO literally for years.  Hooray!

Here’s a bright idea, Governor: Don’t reduce funding for energy efficiency programs in ME

Jun 20, 2011 by  | Bio |  Leave a Comment

With the passage of the state budget this week, the Maine legislature put politics ahead of the people in rejecting the Efficiency Maine Trust’s effort to maintain its funding for electrical efficiency programs. The Trust was proposing to increase a charge to electricity ratepayers in order to to sustain its funding levels for electric efficiency over the next three years and replace drained federal stimulus funds.

This was the perfect opportunity for our elected officials to help fulfill their campaign promises to produce growth and economic development in the state. How surprising then, that when presented with a chance to invest in a program that provides at least three dollars of return for every dollar invested, create thousands of jobs in Maine and stimulate commerce, the legislature’s Republican majority and Governor LePage openly rejected it.

Unfortunately, it would appear that the vote was at least in part a product of bias among  conservatives against a program that, because it happens to be good for the environment and was widely supported by Democrats, is perceived to have liberal leanings. In reality, the Trust and its programs are just as much about energy cost savings and economic development, goals to which both parties should aspire. The Trust is the public entity that helps to fund projects that enhance the energy efficiency of Maine’s homes, businesses and industries.

The work of the Trust is important for several reasons.:

  • The financing provided by the Trust inspires the replacement of outdated technologies, from machinery to light bulbs, in favor of more energy efficient alternatives that reduce overall energy consumption.
  • Less energy consumption means lower electrical bills for the recipient, lower energy prices and less frequent costly upgrades to our electrical transmission infrastructure to accommodate increasing demand, savings that are shared by all Mainers.
  • The funding provided by the Trust is only a portion of the overall efficiency investment. The Trust’s “seed money” results in significant private investment, borrowing from banks and other forms of financing. In short, the added push of the Trust’s funding for a project results in a commercial ripple effect that benefits many sectors of our economy, providing jobs and demand for products.
  • Greater energy efficiency means less electricity needs to be produced, which translates into reduced consumption of fossil fuels and reduced pollution.

But increasing electricity charges can’t be good for Mainers you might suggest. Therein lies the rub. First, the proposed increase was small, approximately one dollar a month for the average household—the cost of a cup of coffee. Second, the economy is not going to rebound while we stand by idly wishing for a miracle, it takes investment to get a return and the Trust is proven to produce returns. In 2010, the EMT saw its $17 million investment in efficiency projects render a lifetime energy savings valued at $95.7 million and serve as the impetus for an additional $76.9 million in private investment in businesses and homes across Maine. Efficiency spending not only saves money– it is an economic driver. Indeed, the Trust funding that the Legislature just denied was predicted to produce an $840 million benefit to Maine energy consumers.

So why would our governor and the legislature effectively defund a program that could generate such significant financial benefits to the state? The answer appears to be party politics that defy logic and economic policy and theory. Perhaps worst of all, it also happens to deviate from state law which requires that Maine, through the Trust, fund and pursue maximum achievable cost-effective levels of energy efficiency.

The real price of renewable energy in Maine

Jun 9, 2011 by  | Bio |  Leave a Comment

Photo credit: CLF

For those of you following Maine Governor Paul LePage’s assault on the state’s environmental protections, check out this op-ed by CLF Maine Director Sean Mahoney, which appeared June 3 in the Bangor Daily News. Here, Mahoney rebuffs LePage’s claim that generating more energy from renewable sources in Maine, as required by the state’s Renewable Portfolio Standard, means higher energy prices for Maine consumers, and rejects his so-called “solution,” a bill entitled “Act to Reduce Energy Prices for Maine Consumers.” Want to hear four reasons why LePage’s Act and attitude are bad for Maine? Mahoney has them here. Read more >