Renewable policies crushing New England's economy

Last week, the New England Energy Alliance in Boston, released the results of its annual survey of New England energy consumers. Paul Afonso, executive director of the Alliance and a former Massachusetts utility regulator, summed the results up this way: "Overall, the main concern of New Englanders continues to be the economy and pocketbook issues. If voters think any policy - private or public - will bring down the cost of energy, they will support it."

If that's the case, than the survey's findings reflect a sentiment that's entirely contrary to New England's current energy policies.

Background

The six New England states have aggressively pushed for renewable energy development in the Northeast, with particular emphasis on wind power. Five of the states, Vermont excluded, have adopted Renewable Portfolio Standards (RPS) mandating that a percentage of the electricity sold retail into the region come from renewables.

RPS obligations for 2010 were about 14% of demand -- an amount satisfied through a combination of existing, qualified resources in New England and renewable energy imported from neighboring New York and Canada. However, these percentages are slated to reach over 20% by 2020 with most of the energy coming from projects not yet built. Meeting the growing renewable obligation with new generation will be substantially more difficult. Critical adjustments in RPS policies are needed now or skyrocketing energy costs will severely cripple New England's economy.

Wind in New England: Today and in 2020

New England currently claims 48 wind energy projects totaling 318 megawatts. Maine has the most wind installed at 266 megawatts; Connecticut the least at 0.1 megawatts. Assuming a generous 30% annual capacity factor, wind in New England produced around 836,000 megawatts hours (MWh) in 2010, substantially below other fuel options including natural gas which produced over 50 million MWh (half the region's demand).

New England would need to add 23 million MWhs of new renewable energy in order to satisfy state mandates by 2020. Since wind energy is the primary resource proposed to be built in the region, and the resource most favored by New England's 'ruling class', future RPS obligations will likely be met by in-region wind power.

But what will this look like?

Meeting 2020 obligations dictated by state laws will require a 28-fold increase (9000 megawatts) in wind energy over the amount installed today. Measured in actual turbines, nearly 3000 3-megawatt turbines would be needed by 2020 or 300 new turbines erected every year for the next 9-10 years.

Nearly every wind project proposed in New England has encountered substantial opposition. Historically, opponents argue local siting concerns including the impact of the turbines on the natural environment and properties in proximity to the towers. Local opposition will certainly intensify. But wind development on the scale necessary to meet RPS mandates will also trigger region-wide fights with complaints expanding to cost and the impact on New England's economy.

Getting to 20% wind in New England

In December 2010, the ISO-New England [1] released the findings of its New England Wind Integration Study (NEWIS). The study, conducted by General Electric, assessed the operational effects of integrating large amounts of intermittent wind power into the ISO's control area. The NEWIS study concluded that significant wind resources could be added to New England's power grid but for a price.

It was the price of this integration that caught our attention.

Existing Power Plants. Despite adding thousands of megawatts of new wind to the grid, the NEWIS study assumed the existing fleet of New England's power plants would remain with no significant plant retirements relative to capacity resources. The study also assumed that new capacity resources proposed to be built would be brought online and the grid's regulation capacity requirement would grow to 313 MW, nearly 4-times the current level.

Twenty-percent wind in New England would not result in the decommissioning of existing capacity nor would it negate the need to build new generation. While wind might displace fossil fuel, primarily natural gas, it cannot replace it.

Transmission. Since many favorable sites for wind development are remote from New England's load centers, development of these distant sites would require significant transmission development. According to NEWIS, 20% wind in New England would require 4,095 miles of new lines at an estimated cost of between $11 and $15 billion dollars. [2]

This cost would be in addition to the $5 billion already approved in New England to address existing reliability requirements. None of the wind-related transmission has been proposed to date nor has any public discussion been initiated on who would pick up the tab. The survey cited above found that New Englanders disliked high-voltage transmission lines even more than wind turbines.

Energy Costs. The NEWIS report is mainly silent on the effect of large-scale wind integration on energy prices, but it does acknowledge two important points.

1) A wind plant's revenue may be below its annual total cost which could require the plant owner to secure higher than market value power purchase agreement(s);

2) By displacing conventional generation, primarily natural-gas-fired resources, revenues for displaced plants would decrease and their economic viability put at risk. Increases in capacity market payments may be necessary to ensure these plants do not shut down.

Adding large amounts of wind to the region may reduce marginal electricity prices since wind has no fuel cost, but the costs passed on to ratepayers are derived from power purchase agreements negotiated between utilities and wind plant owners. Onshore wind currently demands between 9-11 cents per KWh, more than twice the wholesale price of natural gas. Offshore wind is even more expensive at over 18 cents a KWh. More wind in the fuel mix will cause upward pressure on energy prices for the life of the power purchase agreements. As these agreements expire in 15-20 years, prices may drop but by that time the turbines will be coming to the end of their operating life.

Other significant integration costs will also be imposed on the region to accommodate wind's intermittency, including billions in new transmission.

Measuring Benefit. According to the NEWIS study, 20% penetration of wind in New England will reduce yearly CO2 emissions by 12 million tons per year, a 25% decline. This percentage is significant but placing a value on the savings paints a very different picture.

Currently, RGGI carbon allowances are trading at the reserve price of $1.89, which would place the value of the benefit at $22.7 million per year -- a fraction of the transmission costs alone, even if paid out every year for 20 years, the life of the wind plants. In fact, just to break even on the $15 billion in new transmission costs, the price of carbon would need to be over $60/ton. Clearly, there are less costly, more appropriate methods of reducing carbon emissions.

Conclusion

We do not object to the findings of the NEWIS report that large quantities of wind can be injected into the region. As an academic analysis, the report is reasonable. However, the requirements necessary to meet a 20% wind scenario in New England are wholly unrealistic. Each state can try and overrule local opposition to individual wind projects and fast-track approvals under the pretext of 'public benefit', but the effect of above-market power purchase agreements, high-priced transmission construction, and other related integration costs will crush the region's economy.

Unless changes are made to current RPS policies, New England is headed for an energy crisis of its own making. But who will press for change? Those making energy policy decisions are driven by ideology and appear unaware of the pending costs. And those likely to benefit financially from the policies, including big utilities wanting to build big transmission, are happy to play along. Unfortunately for New England's energy consumers, no one is watching out for their interests. 

[1] The ISO-NE is a non-profit entity tasked with managing the New England grid system and ensuring the day-to-day reliable operation of the region's bulk power generation and transmission.

[2] Figures from the ISO-NE Governors’ Economic Study referenced in the NEWIS report.