ISO-NE’s annual report describes how the region’s power system will be ready for the transition
Vermont Business Magazine New England’s clean-energy goals can be achieved by harnessing the same competitive market forces that have kept the region’s power system reliable for the past two decades, says ISO New England in its 2020 Regional Electricity Outlook (REO), released today. As the report explains, the power grid will be ready as New England moves away from fossil fuel resources to clean and renewable energy resources. ISO New England Inc is the non-profit operator of the region’s bulk power system and wholesale electricity markets.
While coal and oil have diminished greatly in recent years, renewables have grown slowly and natural gas and nuclear have held the largest shares. Meanwhile, imported energy, mostly Canadian hydropower, have made up most of the losses in coal and oil.
As for energy use into the future, total consumption eventually is expected to grow slowly, but efficiency and renewables, especially solar, are expected to reduce generation requirements.
“New England is unquestionably on the path to a clean-energy future,” says Gordon van Welie, president and CEO of ISO New England. “As the region moves forward and the resource mix changes because of state climate goals and industry innovation, the ISO will continue to adapt and refine the region’s wholesale electricity markets to ensure the power grid stays reliable.”
Highlights from the REO include:
Focusing on State Goals—When New England moved to restructure its electricity industry, the goal for the newly created competitive wholesale electricity markets was to lower costs, encourage innovation, and shield consumers from unwise investments. Over the past 20 years, the markets have delivered on these efficiencies, including significantly lowering costs and emissions.
Today, the states’ policy focus has expanded beyond least-cost and now includes clean-energy goals; meanwhile, wind projects currently dominate the new resource proposals. The ISO is working with both the states and the industry on adjusting the region’s wholesale markets to keep the system reliable when these, and other clean-energy resources, are ready to enter the marketplace and connect to the grid later in the decade.
Focusing on the ISO role—As ISO New England continues to fulfill its three primary roles and responsibilities, the following examples highlight how the ISO is already making the transition to the grid of the future; in recent years, the ISO has:
- Developed the first multi-state energy-efficiency forecasts
- Launched a new way to measure solar output that is integrated in the region’s markets
- Introduced negative market pricing so wind and solar resources can stay online during low-load conditions
- Fully integrated demand response resources into the electric energy and reserve markets, the first in the nation to do so
- Introduced enhanced rules for energy storage to participate in the markets whether these resources are charging (using electricity) or discharging (dispensing electricity)
- Established a route for state-sponsored renewable resources to enter the capacity auction while maintaining market competitiveness
Focusing on the future—Although the power grid’s transition is well underway, ISO New England has to keep one-step ahead so consumers will have the electricity they need 24/7/365. The ISO’s work in the intermediate term is to update the market products and services through its Energy Security Improvements initiative to keep the power system reliable during energy-limited conditions.
For the longer term, regional policymakers are currently considering which policy instruments will best incentivize New Englanders to decarbonize and change important aspects of their lives—to adopt electric vehicles and convert their homes and businesses to electric heat. ISO New England expects the power system will look very different in the future, and the “electrification of everything” raises important questions about where the region is heading in the coming decades in terms of the overall architecture of the regional power system and wholesale marketplace.
As the region moves toward these goals, discussions on possible long-term changes to the wholesale markets have started among industry stakeholders, the states, and the ISO. Up for discussion is which competitive market structure would be the most suitable for New England to pursue in order to harmonize and achieve the objectives of power system reliability, product affordability, and carbon reduction.
Helping the states accelerate the clean-energy transition to fulfill their GHG goals
Despite significantly reduced emissions from the power system, action toward meeting economywide GHG goals set by the states is just getting underway. There is a growing desire to accelerate actions needed to meet the climate goals. With deadlines looming, the states are eager for the quicker transformation of the power grid to renewables and for electrification of the broader economy.
Because large-scale renewable resources typically have higher up-front capital costs and different financing opportunities than more conventional resources, they have had difficulty competing in the wholesale markets.
Therefore, the New England states are promoting, at varying levels and speed, the development of specific clean-energy resources to meet their public policy goals.
Several states have established public policies that direct electric power companies to enter into rate-payer-funded, long-term contracts for large-scale carbon-free energy that would cover most, if not all, of the resource’s costs. Long-term contracts carry risk given the rapid development and falling costs of new technologies—and this risk of stranded costs is placed back on consumers.
As policymakers seek to convert the transportation and heating sectors to carbon-free electricity to fully meet climate goals, this public policy trend is expected to continue.
Pricing carbon within the competitive market structure is the simplest, easiest, and most efficient way to rapidly reduce GHG emissions in the electricity sector. Moreover, placing a realistic price on carbon would enable consumers to pay accurate, competitive prices without the risk of paying for stranded costs.
However, New England state policymakers and other stakeholders responsible for putting this approach into motion have not pursued a carbon-pricing option that effectively reflects decarbonization goals, neither economywide nor in the electricity sector.
In the absence of a regional strategy for realistic carbon pricing, ISO New England designed and implemented Competitive Auctions for Sponsored Policy Resources (CASPR) to enable the resource transition to take place in a manner that does not compromise reliability. CASPR is a state-of-the-art solution that allows state-sponsored clean-energy resources (such as state-contracted offshore wind) into the capacity market without artificially depressing prices for all other resources.
Unrestricted entry of state-sponsored resources into the capacity market could lead to economic distortions, undermine the competitiveness of the market, and cause retirements to happen too quickly.
Or, it could deter new investment in other resources that don’t have a contract but are needed to operate the grid reliably (such as merchant investment in grid-scale storage technologies).
It is important to note that CASPR does not prevent potential capacity resources from clearing in the primary auction if they are economic. Rather, it provides an opportunity for state-sponsored resources unable to clear in the primary auction to trade with a capacity resource seeking to retire, thereby avoiding the expensive and inefficient acquisition of more resources than required for reliability.
The ISO conducted the first substitution auction in conjunction with Forward Capacity Auction #13 in 2019. CASPR will work over time, depending on the timing and buildup of the economic incentives for buyers and sellers.
While CASPR is a second-best solution for reducing (or eliminating) carbon from the power sector, the market design demonstrates ISO New England’s consideration of the region’s climate goals and adherence to our mission to ensure reliability through a competitive wholesale market structure.
The 2020 Regional Electricity Outlook is available at www.iso-ne.com/about/regional-electricity-outlook.
Source: Holyoke, MA—February 28, 2020—ISO New England