As late as last fall, many observers and traders watching the New England energy markets were predicting a repeat of last year’s very expensive winter, or worse. By January, CLF was able to post an update showing that those predictions weren’t materializing. In fact, the expected energy crisis was fizzling, with much lower wholesale power and natural gas prices than last year and no signs that gas-fired power plants were struggling to get fuel. We laid out a series of market shifts and changes that were making a difference.
As I mentioned in the first part of this series on this winter in New England’s energy markets, February was a major test for New England’s energy system. It was the coldest February in modern times, with bitter cold, record-breaking snowfall, and no “February thaw” whatsoever. Adding to retirements of several major non-gas power plants in 2014, some of New England’s remaining non-gas power plants experienced outages or problems. The whole Northeast was much colder than normal, driving record natural gas demand for heating and electric generation. On February 2, New England set an all-time record for daily gas demand of 4.21 billion cubic feet.
Despite the challenges, the factors we identified in January helped keep prices in check and the lights on for the balance of the winter:
- Major deliveries of liquefied natural gas to Boston helped ease gas supply concerns and last year’s pattern of speculating traders bidding up daily natural gas prices to astronomical levels on fears of shortages and delivery problems. On the coldest days, as the SNL chart below shows, LNG added as much as 10% to New England’s inbound gas deliveries, much more than last winter. Since 2013, CLF has identified additional LNG deliveries using existing infrastructure as a cost-effective way to help meet the region’s peak winter energy needs. This year confirmed that market-priced LNG can calm the markets, reducing volatility and scarcity concerns. As my colleague Greg Cunningham told the Boston Globe this week, New England’s existing LNG infrastructure could be even more fully utilized in the future; for example, it’s clear that the system would have benefited from additional deliveries in late February.
- Thanks to the global crash in oil prices, fuel oil was available for about half last year’s price, moderating the price of liquefied natural gas, which is linked to oil prices. During the coldest weather, especially in February, lower oil prices directly lowered power prices as well because, with oil cheaper than spot-market gas, oil-fired power plants (or gas-fired power plants with the capability to run on oil) were setting electric market clearing prices. While it’s not good news that more-polluting resources like oil and coal plants were able to run, they did not run as much this winter as last winter (even accounting for dual-fuel oil demand):
- Regional grid operator’s ISO-NE market changes implemented in December, including hourly offers and re-offer opportunities, improved price transparency and formation, which clearly helped dampen and lessen the duration of cold weather price spikes. Other gas-electric coordination steps encouraged by the Federal Energy Regulatory Commission also made a difference. What we’ve seen in March is a rapid drop in prices from February levels, something that didn’t happen last year in similarly cold weather.
This winter, we also saw reasons to worry less about two other concerns: the very real and legitimate hardships of this winter’s high retail prices for ordinary customers and the ongoing retirements of older power plants.
- With lower oil prices, households and businesses also have been paying much less for oil and petroleum fuels this winter. A January government estimate puts these savings in 2015 at $1500 for the average family that both drives and heats with oil, and at $750 for the average family that drives and heats with other fuels. These savings are totally offsetting (and more) the $30 to $50 monthly increases in average electric bills that some New England households are facing through the first part of the year. And as noted in the first part of this series, summer electric rates are on the way down; when 2015 is over, average electric supply rates for the year will be higher than in 2014, but by far less than the eye-catching percentages cited in the news reports announcing this winter’s retail increases.
- In February, ISO-NE held its annual auction to buy electric generating capacity to meet the region’s electric needs three years from now. As my colleague Jerry Elmer noted at the time, that auction successfully procured an overall surplus beyond the very high “installed capacity requirement” that ISO-NE has determined is appropriate. With somewhat higher prices than past auctions, ISO-NE’s capacity market is serving its purpose—to ensure that new power plants, especially wind and natural gas, will be replacing the plants set to retire in the next few years. Another signal of a strong market for new resources came earlier this month, when 16,000 megawatts of new generating capacity (an amount equivalent to nearly half of the region’s power plant fleet) expressed an interest in participating in next year’s capacity auction for 2019-2020. Analysts are expecting capacity prices to decline in future auctions as these new power plants compete against each other. Our region’s growing energy efficiency and solar investments will also moderate peak demand and keep overall electric demand flat, as acknowledged in ISO-NE’s plan to count behind-the-meter solar generation in calculating that demand and its energy efficiency forecast.
With this winter behind us, what are its lessons for future winters—and our region’s energy future? With massive proposals for new energy infrastructure on the table, with supposed goals of solving our winter energy problems, what should New England do next? I will explore these issues in the next post in this series.
(photo: Two kids cross country skiing in a snow storm on a woods road near Greenville, Maine, copyright Jerry and Marcy Monkman/EcoPhotography)