Market Policies, Emissions Goals on Collision Course in New England

BOSTON — ISO-NE market rules favoring natural gas are on a collision course with state and federal environmental mandates, speakers at the EUCI US/Canada Cross-Border Power Summit said Tuesday.

Left to itself, renewable energy advocates said, the market would dictate a shift to natural gas, and only natural gas, ignoring the impact on greenhouse gas emissions.

Backers of gas generation countered that renewables are benefiting from government-backed subsidies and long-term contracts that threaten to reintroduce government-mandated integrated resource planning.

Dan Dolan, president of the New England Power Generators Association, told the conference that state policies are giving renewables undue advantage and undermining conventional generators’ investments in the market.

He cited state-backed long-term contracts that could introduce more than 2,000 MW of Canadian hydropower into the region. “You can’t add that much stuff onto the plate without some of the soup getting spilled over the side,” Dolan said.

In the last two Forward Capacity Auctions conducted by ISO-NE, about 3,200 MW of new gas-fired generation has successfully bid into the market, he said. “Of all those megawatts of cleared resources, not a single one of those has a state-backed long-term contract or other subsidy,” Dolan said.

Francis Pullaro, executive director of RENEW Northeast, which represents renewable energy developers and environmental organizations, said current market rules skew toward natural gas and disadvantage clean energy resources. Natural gas “resources are going to be built over the next couple years with generous capacity payments” that make financing easier to obtain, he said.

Under the FCAs run by ISO-NE, resources are able to lock in prices for seven years. Renewables, Pullaro pointed out, have little capacity value and are only able to obtain financing through long-term contracts, which states have required from the electric distribution companies.

“We really can’t add any more gas to the system than what is already expected to come onto the system over the next few years if we are going to meet our greenhouse gas reduction laws,” he said.

Primary among them is the Massachusetts Global Warming Solutions Act, which requires a 25% reduction in carbon emissions from 1990 levels by 2020. Several New England states have followed suit with similar emission-reduction goals.

To meet its target, Massachusetts Gov. Charlie Baker has proposed a bill, S. 1965, that would allow electric distribution companies to enter into long-term contracts for large hydropower resources and offshore wind.

Janet Besser, vice president of policy and government affairs for the Northeast Clean Energy Council, a trade group for clean energy businesses, said the legislation’s support of offshore wind is “a critical component of the bill.” Wind, combined with hydro resources, could provide firm capacity, especially with a transmission buildout to connect remotely sited resources, she said.

“It’s an overarching policy goal and it is also a goal of customers. They want resources something other than gas … they are not resources being delivered by the market alone.”

The battle for generation market share is unlikely to end any time soon, as the region also faces the prospect that almost 6,000 MW of coal and oil-fired generation that is at least 40 years old will retire in the next few years.

That, observed Ned Bartlett, undersecretary of energy and environmental affairs for Massachusetts, is “enough power to supply Maine, New Hampshire, Vermont and Rhode Island combined.”