Massachusetts' selection of the Northern Pass Transmission project to deliver 1,090 MW of hydro power from Quebec could significantly impact wholesale energy and capacity markets, but there is disagreement over the results for market participants and ratepayers.
"The biggest impact on the market will be on the energy side," Dan Dolan, president of trade group New England Power Generators Association, said Friday in a phone interview. "Roughly 1,000 MW will be coming in as a price taker, depressing prices of other resources that won't get 20-year power purchase agreements with Massachusetts consumers," he said.
In March 2017, Massachusetts issued a request for proposals for about 9.450 million MWh/year of electricity, equal to about 17% of the state's annual load. The state received 46 bids from solar, wind and hydro projects, from which it selected Eversource Energy and Hydro-Quebec's Northern Pass project.
The bid's final acceptance and contract award are conditional upon successful contract negotiations between the parties and regulatory approval from the Massachusetts Department of Public Utilities.
The solicitation's goal is to create "clean energy pricing that is competitive with carbon-emitting fossil fuels," according to a statement the Massachusetts Office of Energy and Environmental Affairs and Department of Energy Resources released Thursday. The procurement is described as the largest clean energy solicitation in the state's history and it will increase Massachusetts' clean energy electricity supply to nearly 50%.
The state on June 29, 2017 issued a separate RFP for 1,600 MW of offshore wind that will be awarded under long-term contracts, with project selections to be announced in April.
The combined hydropower from Northern Pass and the offshore wind RFP would account for 40% of the energy supply in Independent System Operator of New England territory, according to Dolan. "In Massachusetts, it would mean roughly 60% of the megawatt-hours supplied to the state would be locked into long-term out-of-market contracts," he said.
The trade group contends Northern Pass is a bad deal for consumers, who will face higher electricity rates, but Eversource argues the project will decrease wholesale power prices.
"The introduction into the regional energy market of the clean energy transmitted by Northern Pass will impact the wholesale market by diversifying it and reducing the wholesale cost of energy," spokesman Martin Murray, said in an email Friday.
Specifically, Northern Pass is estimated to reduce wholesale energy costs by about $600 million/year for 10 years, according to expert economic analysis filed with News Hampshire permitting authorities, Murray said.
He points out that NEPGA has "a dog in this fight" as its members are "collectively this year collecting more than $2 billion in 'Capacity' payments." The introduction of a significant amount of clean energy into the regional power pool from Northern Pass will reduce future capacity payments, he said. "So, it is not surprising that NEPGA is vigorously opposing our project, which was chosen on the basis of a transparent, competitive and fair evaluation of all the proposals submitted," Murray said. CAPACITY MARKET IMPACTS DEPEND ON FEDERAL REGULATORS
The manner in which Northern Pass' 1,090 MW of power will be treated in the ISO NE capacity market is a "big unknown," NEPGA's Dolan said, because the grid operator's proposed capacity market changes are awaiting a Federal Energy Regulatory Commission ruling.
The proposal called Competitive Auctions with Sponsored Resources seeks to balance state public policies, like the Massachusetts clean energy RFPs, with competitive wholesale power market structures.
CASPR would allow Northern Pass resources to enter the market, but they would need to be accompanied by the retirement of roughly 1,000 MW of other resources. Since CASPR is untested, it is unclear whether those resources would actually exit, said Dolan. If those resources did not exit, "than Northern Pass wouldn't clear in the capacity auction," he said.
On the other hand, if CASPR is not approved, the existing minimum offer price rule -- meant to strip out the impact of subsidies -- would apply to Northern Pass supply "that would have to have to bid in at true economic cost and as a result would be unlikely to clear," Dolan said.
