The Final Word on Winter in New England’s Energy Markets, Part III: Some Lessons from a Calm, Cold Winter
With the winter behind us, New England can look to its energy future with the benefit of what we learned as predictions of crisis fizzled and historic cold tested the region’s energy system. In the first post of this series, I explained the data showing that New England energy markets this winter were much less expensive and volatile than during the winter of 2014. In the second post, I identified some reasons for this turnaround: market shifts that increased imports of liquefied natural gas and lowered fuel prices, and reforms that improved energy market rules and procedures. In this final post, I offer a few of this winter’s lessons, with important implications for the billion-dollar decisions on the future of our energy system that are now pending in state houses and government agencies around New England.
#1: With the savings this winter, the benefits of big bets on new infrastructure just got more questionable.
This winter’s most important lesson was that we can significantly reduce winter volatility and prices by more wisely using and upgrading the infrastructure we already have. Wholesale prices were way down, and electric reliability wasn’t at risk, despite the coldest February on record. But there was virtually no new energy infrastructure on the system; in fact, it was just the opposite: four large non-gas power plants retired before cold weather set in.
This lesson is not a new concept: CLF made this point well before the winter when we raised questions and released documents on the New England governors’ energy infrastructure “grand bargain” to subsidize new gas pipelines and power lines. At the time, an advocate of the Governors’ plan called CLF’s perspective “very dangerous.” It looks like we weren’t so off target.
In the next few years, several incremental gas pipeline projects will come online, adding to the region’s capacity by 10%. Although these projects’ capacity is not dedicated to power plants, it is intended to meet peak heating needs of gas users in a decade or more, meaning that in the short-term most of the new capacity will be available to serve electric generation. These projects should help ease some of the stress that cold winter weather places on our increasingly gas-dominated electric system. If the region’s many clean energy advocates can help it, we will also continue to accelerate investment in our cheapest resource—energy efficiency—and local, zero-carbon renewable projects like wind and solar that help reduce demand for fossil fuels, in the winter and year-round.
In the meantime, we need to move past panic over illusory energy shortages and the idea that building every costly energy project on the table will inevitably lower costs. Unfortunately, these are the very arguments we continue to hear in favor of spending billions on new energy infrastructure now. According to these arguments, the winter was a minor, lucky reprieve from the dire trend of higher prices driven by insufficient gas pipeline capacity and power plant retirements. From this perspective, there are huge risks of “inaction,” with “action” meaning large new ratepayer-funded bets on new gas pipelines and also new power line infrastructure.
But all infrastructure is not created equal: there are promising approaches to addressing winter challenges that make greater use of existing infrastructure and that are tailored to meet market needs. In CLF’s view, we should favor these approaches first and evaluate any big new investments—especially those funded by the public and with major ramifications for climate, the environment, and local communities—with extreme caution and exacting scrutiny.
Some of the more important questions to answer: do the supposed benefits (lower wholesale electric prices) outweigh the costs (of constructing new projects with financing from electric customers)? Do alternatives to big new infrastructure provide a better bargain by providing similar benefits but lower costs? While a number of studies completed before this winter have been cited as evidence of benefits, those studies posit that new infrastructure will lower wholesale energy prices by more than the cost of the infrastructure. However reputable or independent the authors of these studies may be (and many are far from the latter), their numbers are based on speculation about what energy markets will do in the future—speculation that will certainly be wrong in one direction or another.
This winter suggests that wholesale prices can come down a lot without big new projects subsidized by electric customers, with modest approaches that cost much less. If that’s true, the money devoted to new infrastructure would add to customer bills with little benefit, at a time when across New England (in New Hampshire, Vermont, Massachusetts, and Maine just this month) proven strategies to advance our clean energy future like efficiency and renewables are at risk of being deprived of the public policies and support they need.
#2: Gas pipelines aren’t a panacea in cold weather.
To some, February’s cold weather and higher wholesale market prices still prove the need for much more pipeline capacity to feed gas-fired power plants. So what should we make of this February’s higher prices?
While New England typically had higher natural gas prices than other parts of the country, the whole Northeast—including areas with robust, brand-new pipelines and closer access to Marcellus shale gas—experienced price spikes during the month, as wave after wave of Arctic air boosted heating and electric demand. Here are snapshots of electric market prices in New York and the mid-Atlantic spiking higher than in New England during February’s cold weather:
— C. Courchesne (@courchesnec) February 18, 2015
If you think gas pipelines & coal keep power prices low on frigid days, look at PJM today (30-50 ¢/kwh across region) pic.twitter.com/uxIIViTqIL
— C. Courchesne (@courchesnec) February 19, 2015
This was a more modest repeat of the same phenomenon last January during the “polar vortex” cold spell. The following chart compares natural gas prices at a hub in eastern Pennsylvania with New England prices.
Clearly, both New England and the rest of the country have considerable room for improvement in coordinating the gas and electric markets to ensure timely, predictable, and cost-effective delivery of gas to power plants when heating and electric needs are both high. The benefits of additional LNG imports and ISO-NE’s modest efforts this winter are strong evidence that better use of existing gas infrastructure and additional market improvements—including ISO-NE’s forthcoming “pay for performance” changes to the forward capacity market—can help meet our cold weather challenges. With so many market variables, it is not clear that adding huge amounts of pipeline capacity will necessarily or cost-effectively reduce market prices, as the infrastructure studies that use data from before this winter so confidently predict.
Nor is it clear that more pipelines will consistently price oil or coal out of the market during the coldest weather. As I pointed out in the second post in this series, New England’s dirtier power sources actually ran less this winter than last winter, and we can better avoid using them at all by improving the gas supply and storage products available to gas-fired generation and deploying more no-carbon (and winter-peaking) resources like wind.
#3: Scare tactics aren’t helpful; finding solutions that don’t break the bank or worsen the true crisis of climate change should be the objective.
With high retail electric bills making headlines and arriving in real customers’ mailboxes, this winter provided fertile ground for arguments that the region’s energy costs pose an existential threat to its economy and competitiveness. The term “energy crisis” was everywhere (and still is). There are two big problems with this frame for our winter energy challenges.
The first is that it’s a gross exaggeration. As I’ve shown in this series, there wasn’t a “crisis” in New England’s energy market this winter, whether we’re talking about energy supplies, the reliability of the electric grid, or wholesale energy costs. That’s why I tracked wholesale energy data all winter with a facetious Twitter hashtag, “#winterenergycrisis,” with a goal of showing that reality was diverging from the rhetoric:
Certainly wholesale energy costs were quite high last winter, and retail electricity prices (set last fall on the fear of the same thing happening again) were quite high this winter. CLF believes that the region can and should work on market and policy solutions, including needed infrastructure. But calling these problems a crisis creates the false impression that we need to mobilize a massive, all-hands-on-deck response; after this winter’s modest market changes made such a big difference, it’s hard to see any wisdom or prudence in reacting this way.
The second problem with the “crisis” frame for winter energy costs is that the alarm is deeply misplaced. It detracts from graver threats to our region’s economy, like this winter’s crippling of Greater Boston’s public transportation infrastructure. At the very top of the list is the undeniable crisis facing the region and beyond: climate change.
As we seek to address the climate crisis, we should avoid building more of the same long-lived, polluting, and costly systems we have today than are absolutely needed, whether as a supposed solution to winter energy costs or otherwise. Our focus should be speeding the transition to an innovative, self-sufficient, much cleaner, less volatile energy market that is less—not more—reliant on fossil fuels from outside New England. From this perspective, the ongoing retirements of inefficient, polluting power plants are not a strategic risk, as ISO-NE describes them; they are an opportunity and a necessity.
Whether impelled by legal requirements like Global Warming Solutions Acts or federal climate regulations, or by the clarion calls of disappearing wildlife, coastal destruction, and increasingly extreme weather, our region’s leaders should be devoting their efforts to building an affordable, decarbonized energy future that stops making climate change worse. Our cleanest resources—efficiency and renewables—are affordable and getting more cost-competitive all the time. Moving us to an energy system with those resources at the center should be New England’s most pressing priority.
Read Part I of this series: The Difference a Year Makes
Read Part II of this series: Why This Winter Was Different
(Photos: Skiers at Jiminy Peak ski resort in Hancock, Massachusetts; A young bull moose in a bog near the Connecticut River in Pittsburg, New Hampshire. Copyrights Jerry and Marcy Monkman/EcoPhotography)