The proposal to build a new 900 megawatt (MW) fossil-fuel-fired power plant in Burrillville Rhode Island raises three important issues.
The first, most important, overriding issue is climate change. This fossil fuel plant, like all fossil plants, will emit carbon. Even the plant’s proponent, Invenergy, acknowledges that as a new, state-of-the-art combined-cycle gas plant, this plant may emit carbon for as long as 50 years! I addressed the climate implications of the Invenergy proposal in a blog on November 18.
The second issue presented by the Invenergy proposal is the reliability of the electricity grid. Invenergy claims that Rhode Island has a shortage of generating capacity, and that this plant is needed to prevent dangerous blackouts. I refuted those inaccurate statements in a blog on November 20.
In this post, I address Invenergy’s third argument, supposed savings on the bills of Rhode Island electricity ratepayers.
On August 4, Invenergy and Governor Raimondo held a joint news conference to announce plans for the power plant. The headline of the joint press statement touted “$280 million in electric rate savings.” The first paragraph of the joint Invenergy/Raimondo press release said “The project will . . . result in $280 million in cumulative rate savings for Rhode Island consumers” during just the first three years of the power plant’s life. [I added the emphasis to those four words about Rhode Islanders because, as I show below, those words are very important.]
Energy and Capacity
Invenergy’s vague reference to “electric rate savings” does a disservice to people trying to understand the possible rate impacts of this plant. As I explained in my November 20 blog, there are at least two separate components to what make up “electricity rates”: energy and capacity. (For those who want a somewhat more detailed discussion of how the energy and capacity markets relate to each other, see here.)
The New England wholesale electricity markets, administered by the ISO-New England, are worth about $9.9 billion per year. Of that amount, $8.42 billion – fully 85%! – is the value of energy. By contrast, the much smaller capacity market is worth about $1.06 billion, or only about 11%. (In this article, I do not discuss the remaining portion, so-called “ancillary services,” as this is a mere 4%.) This pie chart reflects those percentages:
There is another way of showing the very same percentage allocations. Instead of looking at the total value of the entire New England electricity market for a year, we can break this down to show the relative cost allocations of every kilowatt-hour (KWh) of electricity you use in your home or office. (An average residential customer may use 500 to 1,000 KWh of electricity per month, depending on the size of her house and the number of appliances she has.) The total cost of the electricity commodity is about 7.78¢/KWh. (This is just for the commodity, and does not count transmission charges and distribution charges.) Again, about 85% (6.62¢ out of 7.78¢) of that cost is energy, and only 11% (or 0.836¢/KWh) is capacity:
Now we will examine separately the possible effects of the Invenergy plant being built (or not being built) on the energy portion of the electric bill (85%) and on the capacity portion of the electric bill (11%).
There will be little change at all for the energy prices paid by Rhode Islanders, whether the Invenergy plant is built or not built. There are two separate reasons for this.
First, for nearly every hour of the year, the prices paid by every electricity ratepayer everywhere in New England are basically the same. ISO-NE runs a single, unitary energy market for the six New England states; and, while there may be very tiny price adjustments made for transmission constraints and line losses, basically an electricity ratepayer in Providence pays the same energy rate for the same hour as her cousin does in Boston, her aunt in Burlington, Vermont, or her friend in Portland, Maine. (“Line losses” are miniscule amounts of energy dissipated in transmission lines and transformers on the grid.)
That’s why it was unhelpful and misleading for Invenergy to pretend that Rhode Islanders would pay lower electricity rates. Invenergy naturally wants local support for its planned power plant, so it touts the economic benefits of its proposal for Rhode Island ratepayers, but, for the most part, there aren’t any.
There is a second reason why the energy portion of the bill won’t change much whether the Invenergy plant is (or is not) built. As I discussed on November 20, there is plenty of generating capacity in New England. In the upcoming Forward Capacity Auction that ISO-NE will hold in February, ISO needs to procure 34,151 MW of capacity. In fact, ISO has 40,131 MW of capacity available: 33,411 of existing capacity resources, and 6,720 MW of new capacity resources (from 147 approved projects). That is a potential surplus of 5,980 MW! Capacity clearing prices (like the prices for other commodities) are a function of supply and demand. When there is enough of an over-supply, a small additional amount of over-supply has a very small additional effect on the overall price.
Sure, it is theoretically possible that building this new Invenergy plant will cause the ISO to use cheaper gas-powered electricity instead of more expensive coal or oil-fired electricity during a very few hours a year. But coal and oil only account for 6% of the New England fuel mix, and – even if the ISO could switch from oil to gas during a few hours a year – the financial benefits would flow to all New England ratepayers, not just Rhode Islanders. Such benefits, if any, would likely by miniscule.
Because Invenergy specified ratepayer benefits that would accrue to Rhode Islanders, Invenergy was probably trying to describe benefits in the capacity clearing price (not energy).
It is true that in the last ISO Forward Capacity Auction (FCA-9, held February 2015) there was an overall shortage of capacity in the zone that included Rhode Island. As a result of that shortage, it is also true that Rhode Islanders will be paying more for capacity than some other New Englanders will. In FCA-9, the capacity clearing price in the zone that included Rhode Island was $17.73 per kilowatt-month. The capacity clearing price for most of the rest of New England was only $9.55 per kilowatt-month. That is, the price in Rhode Island was 85.6% higher than for most of the rest of New England.
Nevertheless, to understand the meaning of those figures for ratepayers, it is important to have some context.
First, as I showed on November 20, these zones have been changed for the next Forward Capacity Auction, so there is now a large surplus, instead of a small shortage, for the capacity zone that includes Rhode Island.
Second, the ISO’s most current projection is that the capacity clearing price in the next FCA, for the newly created zone that now includes Rhode Island, might go up by 82¢ per kilowatt-month. If that projection is accurate, that would be an increase in the capacity clearing price within Rhode Island of 4.6%.
Crucially, however, capacity represents only 10.7% of the overall commodity price of electricity paid by ratepayers. (See charts, above.) So the possible, hypothetical increase of 4.6% in capacity would only result in an overall increase in the total price of electricity paid by consumers of 0.49% (that is, ½%). (This is because 10.7% x 4.6% = 0.49%.)
What does this work out to in actual dollars? About $300,000 in possible, future ratepayer savings per annum, or less than $1 million in possible ratepayer savings during the first three years of the proposed plant’s operation, combined – rather less than the $280 million in ratepayer savings touted by Invenergy. (In fact, actual ratepayer savings come in at more than 99% less than the figures touted by Invenergy!)
In the end, the possible, hypothetical, tiny, future savings (½%) in electricity costs must be balanced against the disadvantages of locking ourselves into a fossil-fuel future by building a new fossil-fuel plant that might emit carbon for 50 years.
Invenergy does the public a disservice by saying that Rhode Island ratepayers stand to save $280 million on their electricity bills if the plant is built. In fact, in terms of the energy market (which, after all, is about 85% of the commodity cost of electricity) there will be little ratepayer benefit at all, and any tiny benefit would not flow just to Rhode Islanders but to all New Englanders. There might be a tiny effect seen in the capacity price paid by Rhode Islanders, but that could amount to no more than ½% of the overall cost of electricity.
It would be dangerous and unwise to build a new, long-lived $700 million carbon-emitting fossil-fuel plant for such a tiny, remote, speculative pecuniary benefit.
TAKE ACTION AGAINST THE INVENERGY PLANT! Send an e-mail to Governor Raimondo telling her that you are not fooled by Invenergy’s false claim that ratepayers will save $280 million in three years if a new, unneeded, long-lived $700 million power plant is built in Rhode Island. Your e-mail will contain a link to this CLF blog post; please add your own comment to Gov. Raimondo to personalize your message.