2014 Summer Electric Outlook: ISO-NE expects adequate supply

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2014 Summer Electric Outlook: ISO-NE expects adequate supply

Thu, 05/15/2014 - 9:22am -- tim

by Timothy McQuiston Vermont Business Magazine The New England region is expected to have the resources needed to meet consumer demand for electricity this summer, according to ISO New England Inc, the operator of the region’s bulk power system and wholesale electricity markets. ISO also reported that wholesale electric prices in New England jumped 45 percent, or $2.7 billion in 2013, mostly because of the rising cost (ie, demand) of natural gas. This led to a windfall for Entergy Vermont Yankee, which made over $100 million in the first quarter of this year, and ultimately to Green Mountain Power customer, as GMP got $17.8 million in revenue sharing from VY. Vermont Yankee is closing by the end of this year.

2014 summer forecast

Under summer weather conditions of about 90 degrees Fahrenheit (°F), electricity demand is forecasted to peak at about 26,660 megawatts (MW). Vermont peaks at about 1,000 MW. If an extended heat wave were to occur and temperatures reached 95°F, the peak could rise to about 28,965 MW. Both forecasts include the demand-reducing effect of region-wide energy efficiency (EE) measures acquired through the Forward Capacity Market (FCM). If EE measures were not taken into account, the respective peak forecast s would be 28,165 MW and 30,470 MW.

“Widespread energy – efficiency efforts across New England have reduced the region’s forecasted peak demand for electricity,” said Vamsi Chadalavada, executive vice president and chief operating officer of ISO New England. “Beginning June 1, the remaining units of the Salem Harbor power station in the Greater Boston area will retire, representing a reduction of 585 MW of generating capacity in the region. While ISO New England expects to have sufficient resources to meet consumer demand this summer, this retirement is the first in a series of expected large resource retirements in the coming years that will reduce the available generating capacity in New England, resulting in the need for new resources.”

New England has a variety of capacity resource types it can use to meet peak summer demand and maintain reliability, including generators , demand-response resources, and electricity imports from neighboring power systems.

Through the FCM, 29,135 MW of generation has capacity supply obligations this summer; however, the maximum electricity output of a generator may be greater than its supply obligation. The ISO has observed that generators typically have offered the additional megawatts , above their obligation, into the energy market when prices are higher and demand is peaking. If all the region’s generators were operating at maximum capability, the total amount of electricity produced would be approximately 30,900 MW.

A total of 1,280 MW of net electricity imports and 700 MW of demand-response resources that can reduce power usage during tight system conditions were also procured through the FCM auction process.

Summer operations and procedures to maintain reliability

During the summer, consumer demand for electricity peaks in New England, largely because of the increased use of air conditioning.

Because of the region’s growing reliance on natural gas as a fuel to produce electricity, ISO New England has taken steps to communicate about the risks associated with uncertain natural gas supplies during peak operating conditions.

Although concerns about fuel supply to natural gas-fired generators are more significant during the winter months because the pipelines transporting the fuel historically have been at – or near – full capacity, difficulties can arise during the summer months because of planned and unplanned pipeline maintenance.

A recent Federal Energy Regulatory Commission order and subsequent ISO New England tariff changes have improved the ability of ISO system operators to communicate with the operating personnel of interstate natural gas pipeline companies for maintaining power system reliability.

In addition, ISO New England has well-established procedures to ensure system reliability in the event of an unexpected resource outage, an extended heat wave that causes electricity demand to spike, fuel supply issues that affect the amount of generation available, or a combination of these factors. Actions available to ISO system operators include calling on demand-response resources to curtail their energy use, importing emergency power from neighboring regions, and asking businesses and residents to voluntarily conserve energy.

Last summer, electricity usage peaked on July 19, 2013, at 27,379 MW. The all - time record for peak demand was set on August 2, 2006, when demand reached 28,130 MW. In New England, 1 MW of electricity can power approximately 1,000 homes.

Rising natural gas costs drove wholesale electricity prices up
The $8.8 billion wholesale electricity markets in New England operated efficiently and competitively in 2013, according to a report released today by the Internal Market Monitor (IMM) of ISO New England Inc, the operator of the region’s bulk power system and wholesale electricity markets.

RELATED STORY: Vermont Yankee to provide as much as $17.8 million for GMP customers

The 2013 Annual Markets Report (AMR13) concludes that higher wholesale power prices in the six-state region in 2013 were largely due to higher prices for natural gas, the predominant fuel used to generate power in New England.

“Wholesale power market outcomes in 2013 reflected the increase in natural gas prices last year,” said David LaPlante, vice president of market monitoring. “While energy prices went up, they were consistent with the cost of production, which is a key indicator that the markets were competitive and efficient.”

AMR13 examines the operation of the wholesale electricity markets administered by ISO New England to determine whether the markets are operating efficiently and competitively. The report presents an assessment of each market based on market data, performance criteria, and independent studies. The annual report includes recommendations to enhance the wholesale markets design, and outlines the improvements that have been accomplished during the year.

AMR13 notes that both the cost and reliability of New England’s electricity system depend on the cost and availability of natural gas and fuel oil. Because natural gas generates the largest share of New England’s power, high prices for natural gas have resulted in high wholesale electricity prices in the winter when the demand for natural gas is greatest. Similarly, the reliability of the region’s electric grid is dependent on generators procuring sufficient natural gas and fuel oil to operate when needed. Some highlights of the 2013 Annual Markets Report:

• Wholesale electricity market value: The total value of the region’s wholesale electricity markets, including electric energy, capacity and ancillary services markets, rose about 45%, from about $6.1 billion in 2012 to about $8.8 billion in 2013. Electric energy comprised $7.5 billion of the total in 2013.
• Energy prices: The average real-time price for wholesale electric energy rose 55%, from $36.09/megawatt-hour (MWh) in 2012 to $56.06/MWh.
• Fuel costs: The average price of natural gas, which set the wholesale electricity price in 69% of the hours in 2013, rose 76% last year, from $3.95 per million British thermal units (MMBtu) in 2012 to $6.97/MMBtu in 2013.
• Consumption: Electricity usage was 1.0% higher in 2013 than in 2012.
• Reliability commitments: Resources can receive payments in addition to energy market revenues, if needed, to cover their costs. This includes resources that do not clear in the energy market but are dispatched to help ensure the reliability of New England’s power system. These additional payments increased 81% to $158.7 million in 2013; about 70% of these payments were made in January, February, July, and December when several resources were dispatched for reliability due to tight or uncertain system conditions.
• Reserve prices: Additional resources are maintained in reserve at all times so the system can recover from the unexpected loss of a resource. Reserve payments rose from $29.8 million in 2012 to $54 million in 2013, due, in part, to the purchase of increased amounts of reserves to ensure reliability. In all, ancillary services such as reserves, reliability commitments, and regulation cost about $270 million in 2013, up from $130 million in 2012.
• Capacity: The cost of capacity fell by 11% from $1.19 billion in 2012 to $1.06 billion in 2013. The report notes that from 2006 through the Forward Capacity Market (FCM) auction held in 2013, more than enough capacity has been available to meet the region’s capacity requirement.
• Demand resources: Demand-side resources participating in the FCM declined 11%, from 1,724 MWin December 2012, to 1,535 MW in December 2013. Payments to demand resources totaled $92.2 million in 2013, up slightly from the $91.6 million paid in 2012.

The ISO relies on two independent market monitors, one internal and one external. The market monitors annually review and report on market results and offer insights into the markets’ efficiency and competitiveness as well as market design and needed operational enhancements.

The IMMreports directly to ISO New England’s Board of Directors, giving the market monitoring unit the independence needed to objectively perform its functions. The IMM submits the annual report simultaneously to the ISO and the Federal Energy Regulatory Commission, which is charged with ensuring that markets within its jurisdiction are free of design flaws and inappropriate market behavior.

View the full report.
Created in 1997, ISO New England is the independent, not-for-profit corporation responsible for the reliable operation of New England’s electric power generation and transmission system, overseeing and ensuring the fair administration of the region’s wholesale electricity markets, and managing comprehensive regional electric power planning.

Sources: ISO-NE. Vermont Business Magazine. PHOTO: Substation in Sheffield.