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April 20, 2015

Winter power costs dropped 45%

PHOTO | HBJ File Regional grid administrator ISO New England monitors the real-time wholesale electricity prices, based on the region's demand and the power supply.
PHOTO | HBJ File Middletown’s GenConn power plant is powered by natural gas.
By John Stearns

New England's 2014-15 winter was snowy, but its wholesale electricity prices from December through February were significantly lower than the previous winter, according to new data from regional power grid administrator ISO New England.

The total cost of wholesale electricity was about $2.8 billion, 45 percent less than the nearly $5.1 billion tab accrued during the same three months in 2013-14, ISO said.

“A lot of factors came together to help moderate the prices over this past winter,” said ISO spokeswoman Marcia Blomberg. “The largest would be the prices of fuel, which is the largest component of energy costs. The ones that had an effect this winter were the low prices of oil and natural gas.”

Natural gas is a major energy source for power plants that produce electricity in Connecticut, so when gas and oil prices fall, they can generate cheaper power. That's what helped keep wholesale prices in check this winter.

Total energy use peaked in February when temperatures hit record lows; December was mild and January was average, ISO said.

New England used 33,654 gigawatt-hours of electricity from December to February, just less than 33,991 gigawatt-hours in the same period a year earlier, ISO reported. The highest power demand was Jan. 8 at 20,556 megawatts versus the previous winter's peak on Dec. 17 of 21,453 megawatts.

While weather played a part in this winter's dropping wholesale prices, oil and liquefied natural gas (LNG) prices played a huge role, said Dan Dolan, president of the New England Power Generators Association. Global LNG prices fell dramatically as Japan restarted nuclear plants and Australia began exporting LNG.

“All of a sudden, New England and the Northeast U.S. became much more attractive [than the Pacific basin] to LNG cargos coming in … in response to our prior winter and the higher gas prices here,” Dolan said.

LNG imports to New England totaled about 31 billion cubic feet, nearly double last year's total. That supply surge increased competition in the wholesale fuels market, moderating the cost of pipeline gas and LNG, said ISO chief economist Matthew White.

Additionally, low oil prices made oil-fired generation plants more economical to run, Dolan said.

To control pricing and help ensure adequate power this winter, ISO's Winter Reliability Program incentivized power generators to have adequate oil on site, or access to LNG before winter started. Power generators were paid to offset some of their carrying costs for unused oil or LNG. The program cost less than $50 million this winter, down from $66 million a year earlier, ISO said.

Also affecting prices this winter, Dolan said, was a change in the New England market structure that allowed generators to more immediately reflect the price of the fuel they were using within the wholesale electricity bids they put into ISO's clearing market.

Easing gas congestion

While this winter's power generation system ran smoothly, pipeline gas supply to power plants remains constrained. Regional pipelines supplying gas to New England plants are maxed out and much of the gas is used to heat homes and businesses. That became an issue in winter 2013-14 when cold temperatures, combined with overreliance on natural gas, pinched supplies.

When that happened, ISO called on plants burning oil and coal to produce more power to meet electricity demand. At the time, however, oil was nearly twice as expensive, leading to higher energy costs. This winter, oil and coal were priced much lower and combined for more than 40 percent of the fuel mix some days.

One long-term solution to easing supply pressures could be the proposed Access Northeast project, a joint venture of Eversource Energy, National Grid, and Spectra Energy, which is designed to expand New England natural gas pipeline capacities and improve gas supply to power generators.

Access Northeast could save New England electric customers $1 billion annually, said Mitch Gross, a spokesman for Eversource Energy.

It would use existing rights-of-way and be completed in 2018, pending states' approvals and a Federal Energy Regulatory Commission certificate, which the partners hope to receive in 2017, Gross said.

“Gas would reach key power plants across New England to help ensure grid stability on the coldest and warmest days,” Gross said.

In addition to helping power plants, it also would provide additional delivery points for local natural gas utilities, Gross said.

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