The Competitive Electricity Market Works to Meet Reliability Needs of the Region

By Cynthia A. Arcate 26 February, 2016

In early February, ISO-NE conducted the annual auction for electricity capacity to serve the region. Under this competitive regime, ISO-NE seeks commitments from generators and other sources of supply, including renewable energy, energy efficiency and demand response, for a three-year period in the future, in this case, 2019-2020. The auction was successful in two significant ways; first, supply was procured for all zones or areas of the region with no deficiencies. In other words, there was more than enough interest by supply providers to meet the needs for the system. Second, the clearing price was 25% lower than the clearing price in last year’s auction.  Bottom-line, there is sufficient power to meet the reliability needs of the region, notwithstanding the retirements of several fossil-fuel plants and one nuclear plant scheduled to close by the time these commitments kick-in and at a lower cost. So what has changed since the last two auctions to result in no deficiencies and lower prices? The answer is simple: availability of low cost oil and liquefied natural gas (LNG) as well as more demand-side resources.

A few weeks ago we identified these facts as “game changers” in the debate about the need for electric distribution companies to enter into long term contracts for natural gas pipeline capacity. We questioned the need for more gas with the availability of low cost oil and LNG. This proves the point. The new generation coming out of this auction is dual-fuel. The experts indicate that there is and will continue to be LNG available globally for a long time to come. The amount of oil needed to run these plants is extremely small – they will run only a few days a year for a few hours. So, this outcome is not significant from an emissions standpoint. The bottom-line is this, the reliability crisis has passed. The need for gas is much less than what we had thought only a year or so ago and the Attorney General’s study was on target in noting that reliability can and would be met by these strategies. Furthermore, ratepayer subsidized Canadian hydro is also clearly not necessary to alleviate any regional supply problems. Problem solved.

Not only did the competitive market work, but circumstances changed and it’s important to reevaluate what is needed in light of these changed circumstances. Some expansion of pipeline capacity is needed by the gas distribution companies for their customers but we no longer should be trying to solve for a problem that does not exist. The generation market is alive and well and does not need contortionist legal and regulatory intervention to find a way to supply natural gas that is not needed or replacement resources for retired plants. Canadian hydro must compete like all other resources. Let the market work and it will deliver what is needed, reliably and cost effectively. Let’s move on to ensuring even cleaner resources which can compete in the market of the future.

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