Fuel security in the New England power market remained a concern in 2017 despite power demand dropping to an 18-year low, according to ISO NE's internal market report and market monitor Potomac Economics' 2017 market assessment.
New England's reliance on gas-fired power has been a topic of discussion in recent years, and the grid operator released a detailed fuel security analysis in January. The top line conclusion was the strong possibility that power plants will not be able to get, or will not have to get, the fuel they need to run, particularly in winter. That is the "foremost challenge to a reliable power grid in New England."
Potomac reached similar conclusions finding that increased reliance on gas has made the power system vulnerable to disruptions in fuel supplies in recent years.
DIRE COLD-SNAP SCENARIO COULD OCCUR
The IMM conducted a fuel security assessment for a two-week severe winter period that found oil and gas demand "will exceed the available supply under a severe pipeline contingency in the 2023/24 cold snap scenario." The results suggest that under such conditions, the grid operator "would lose its ability to serve the load for an extended timeframe."
Additionally, recent experience during the 2017/18 cold snap showed the ISO can have surplus operating reserves in the real-time market even when the generator fleet is "running very low on fuel."
Indeed, ISO NE had to "posture" some units in January to conserve fuel, which meant postponing the operation of oil-fired generators and pumped hydro storage units for later in the day or week, the ISO said at the time.
"During many recent winters, regional gas utilities have been using most, if not all, of the capacity on the pipelines that carry natural gas into New England This leaves very little to no pipeline capacity for electric generators," according to the grid operator's Regional Electricity Outlook.
Utilization through the Algonquin Pipeline's Stony Point Compressor, a key constraint point just north of the New York border, averaged 95% in winter 2015-16; 92% in winter 2016-17; and 92% in winter 2017-18, according to S&P Global Platts Analytics.
Over the decade from 2010 to 2020, 4 GW of oil- and coal-fired capacity has retired or will retire and the remaining oil and coal capacity will be economically challenged by falling capacity prices, the phase-in of pay for performance, which started in June, and state-subsidized resources entering the market, the IMM said.
As a result, market design changes may be needed to "ensure that generators have incentives to conserve limited fuel supplies and allow market prices to efficiently reflect these fuel limitations," the IMM said. HIGHER GAS PRICES DROVE UP POWER PRICES
Energy prices rose 12% to 17% from 2016 to 2017 as gas prices increased by 19%, averaging $3.72/MMBtu, a 61-cent increase from 2016.
"This correlation is consistent with our findings that the market performed competitively because energy offers in competitive electricity markets should track input costs," Potomac said in its report that was presented at the New England Power Pool Participants Committee 2018 Summer Meeting.
Lower power demand, which was down 2% or 341 MW/hour, particularly in the third quarter of 2017 when it was down 8% or by 1,280 MW/hour, helped offset the impact of higher gas prices, ISO NE said.
While average load fell 2% from 2016 to 2017, peak load fell 7%, Potomac said, which reflected mild weather during most of the year, an increase in energy efficiency programs and strong growth in behind-the-meter solar generation.
MARKET POWER IDENTIFIED IN REAL-TIME MARKETS
The IMM found that ISO NE's markets performed competitively in 2017, but market power concerns remain in Boston and market-wide under high-load conditions. However, little evidence of "significant market power abuses or manipulation in 2017" were identified. The Boston market power concerns will be "further alleviated with the completion of the Greater Boston Reliability Project and when the Footprint Power combined-cycle gas-fired power plant comes into service," Potomac said.
The reliability project is a transmission line expansion and Footprint Power is a 674-MW gas-fired power plant being built in Salem, Massachusetts.
ISO NE noted the real-time market has "frequent structural market power" and the top four firms had 48% of real-time generation, "with shares not highly concentrated in any one firm." Similarly, four firms had 52% of real-time consumption, with shares not highly concentrated in any one firm.