The push to add clean power resources to the region’s energy mix is going to drive up electricity prices, at least in the short term.
Clean energy advocates have hinted that the state could meet its greenhouse gas reduction targets and stabilize or even cut electricity costs, but a new study that synthesizes all the previous studies makes clear that will be impossible. The study, conducted by the Brattle Group and funded by the Barr Foundation, said the state is caught in a bind: It needs clean power to meet legally mandated greenhouse gas emission targets but that power will be more costly.
“The studies reviewed above have included clean energy resource cost assumptions that are more expensive than current and projected market prices, at least in the near term,” the study said.
The Brattle Group also seems to endorse a criticism voiced by existing power generators, who have raised concerns about the state’s decision to negotiate long-term contracts at above-market prices directly with suppliers of Canadian hydroelectricity and offshore wind. The long-term contracts are needed because hydro and offshore wind suppliers can’t push ahead without them and cannot compete directly with existing, primarily natural gas-fired, generators.
The study says the clean energy contracts are likely to drive down wholesale energy prices. If those lower prices drive existing power generators out of business and discourage others from investing in new power plants, the market may respond by pushing wholesale prices up again. “The studies that conclude customers’ rates will decrease based on significant downward pressure on wholesale energy and capacity market prices may not have fully considered these effects,” the study said.
The long-term contracts also burden electric ratepayers with more risk, according to the study. One of the reasons Massachusetts deregulated the electric industry was to shift the risk of building power plants from consumers to energy developers. Fixed-price, long-term contracts negotiated by utilities under the direction of the state would shift the risk needle back in the direction of electric ratepayers.
David Cash, who commissioned the report and is the dean of the McCormack Graduate School of Policy and Global Studies at the University of Massachusetts Boston, said he doesn’t think the long-term contracts will distort the electricity wholesale market. He said the market isn’t completely free of interference now, noting subsidies for fossil fuel generation and barriers to entry for new power sources. He described the long-term contracts envisioned by legislation on Beacon Hill as “market corrections.”
Cash said he pushed for the Brattle Group report because lots of studies have been done on the state’s energy situation but nearly all of them have adopted a fairly narrow view. Indeed, he said one of the report’s most important conclusions is that the Legislature and Gov. Charlie Baker are lurching from crisis to crisis in energy with no one attempting to formulate a long-term, comprehensive plan.
“Considering the importance of energy to the state economy, and the need to plan for reducing greenhouse gas emissions from all sectors of the economy, the fact that no entity is charged with comprehensive energy planning authority makes it almost impossible to create optimal solutions to meet Massachusetts’ energy challenges,” the report said.
Without saying so, the Brattle Group study also suggests the energy bill passed earlier this month by the House should be viewed as a starting point and not an end point. The House bill directs the state’s utilities to negotiate contracts for roughly 1,200 megawatts of offshore wind and 1,200 megawatts of Canadian hydroelectricity or some combination of hydro and another form of clean energy.