20-year PPAs for 9.45 TWh of hydropower
HQ's ability to deliver, market impacts questioned
The Massachusetts Department of Public Utilities' approval of long-term contracts between the state's utilities and Hydro-Quebec for 9.45 TWh of hydropower amplified a debate about how this supply will impact the wholesale power market and whether it will be incremental.
"Moving forward with these hydroelectricity contracts is an important next step toward providing Massachusetts ratepayers with additional clean energy resources that will reduce monthly energy bills, cut greenhouse gas emissions and improve winter reliability," Governor Charlie Baker said in a statement Wednesday.
Three individual power purchase agreements provide for the delivery of an aggregate of 9,554,940 MWh annually to Unitil, Eversource and National Grid for 20 years, according to the DPU order.
The power will be supplied through the $1.1 billion New England Clean Energy Connect transmission project which is a 145-mile, 320-kV high-voltage direct current transmission line that would run from the Quebec-Maine border to Lewiston, Maine.
That project is going through the permitting process in Maine. The contract approval represents the largest procurement of clean energy in Massachusetts' history, according to the DPU, and increases the state's electricity supply to "nearly half coming from clean energy resources."
The 1,200-MW transmission line, with 1,090 MW contracted to Massachusetts, would leave 110 MW for use on a merchant basis, according to HQ.
POWER MARKET IMPACTS
There is concern among opponents regarding how this large influx of inexpensive hydropower will impact the wholesale power market.
"At the wholesale level this would have the effect of suppressing prices," Dan Dolan, president of trade group New England Power Generators Association, said in a phone call Wednesday. "The cost of the contract would be recovered directly through customer bills and HQ would come into the wholesale market as price takers bidding in at zero $/MWh," Dolan said.
With a total levelized price of 5.9 cents/kWh (in real 2017 dollars) for the energy and transmission, the project is expected to provide approximately 2% to 4% savings on customer's monthly bills, according to the DPU.
"Massachusetts consumers will now be paying out the largest single contract for electricity in Massachusetts history, for power that Hydro Quebec has largely already been providing," Dolan said in a statement.
The utilities purchasing the power assert that, over the term of the contracts, an estimated $3.962 billion in "net benefits will accrue to Massachusetts ratepayers," according to the order.
HQ agrees there will be price suppressive impacts associated with the project.
"When you inject a large volume of power at stable prices it will suppress wholesale power prices," Gary Sutherland, HQ's relationship manager in business development, said in a phone call.
Project opponents also argue HQ does not have adequate supply to meet its domestic and export commitments.
"Our concern is HQ does not have enough power to export these supplies because they are a winter peaking system and the concern is they won't be able to supply those historical flows and add the new 1,200 MW on NECEC," NEPGA's Dolan said.
Quebec's highest peak demand of 39,240 MW occurred January 22, 2014.
The problem is that the way the contract is set up it establishes a baseline of zero upon which this supply has to be incremental, Dolan said, noting the Massachusetts' Attorney General's office raised the same concern.
In the contracts, Unitil and Eversource require a fixed amount of 3 TWh of baseline hydropower generation, while National Grid's terms provide for 9.45 TWh, "with potential downward adjustments based on an adjustment formula."
"The new NECEC transmission line specifically enables HQ to deliver firm hydroelectric generation from Quebec into New England pursuant to a firm delivery schedule that is distinct from, and in addition to, its existing commercial trading activities," the DPU said in the order.
"We are taking on a new contract for 9.45 TWh while maintaining volumes reflecting historic deliveries into New England that have been short-term market sales," Sutherland said. In early 2000's HQ built into its capacity expansion process an outlook for increased exports, he said, adding that Quebec demand has been fairly stagnant since around 2008.
The last major intertie connection between Quebec and the US was completed close to 30 years ago. The roughly 2,000 MW capacity transmission line that connects into the Boston area was completed in the late 1990s. The line, originally underpinned by a long-term contract, currently operates on a merchant spot basis.
