ISO New England's growing reliance on natural gas-fired generation, coupled with delays in expanding pipeline capacity, continues to put "fuel security" at the top of a list of challenges to progress, the independent system operator's president and CEO said Monday.
During a media Internet conference entitled "State of the Grid: 2017," Gordon van Welie, ISO New England's president and CEO, noted that his organization had the lowest average wholesale electricity price since the market opened in 2003, reflecting low natural gas prices and "mostly mild weather."
"However, last year's low prices and mild weather mask fundamental challenges that could derail the region's progress toward a cleaner, greener power system that can provide competitively prices and reliable electricity," van Welie said. "The most pressing of these challenges is fuel security."
Inadequate fuel infrastructure "is a current, and growing, reliability risk," he said.
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ISO New England has about 17 GW of natural gas-fired generation as of the end of 2016, and another 23.4 GW of capacity in the generation interconnection queue, van Welie said, but too little of that generation capacity has firm delivery contracts to make up for the rapidly retiring and at-risk nuclear, coal and oil generation.
"There's a point at which we will not be able to ensure reliability if we continue retiring ... resources," van Welie said.
Since 2013, 4.2 GW of New England non-gas resources have been retired or had retirement announcements, and another 6 GW is at risk, van Welie said.
"Despite the growing need, the outlook for additional energy infrastructure has dimmed," he said. "Siting energy infrastructure projects has proven to be difficult. State efforts to develop a regional funding mechanism to expand natural gas infrastructure have stalled, and several natural gas pipeline projects have been suspended. These and other factors are likely to require greater reliance on higher-emitting, less efficient resources."
Asked how last week's announcement that Norman Bay would resign as chairman of the Federal Energy Regulatory Commission as of this Friday, which would leave FERC without a quorum, might affect the FERC approval process, van Welie said, "I think it will create a temporary delay."
However, van Welie said he expects new commissioners will soon be appointed to fill out the FERC leadership, and, "We are not aware of anything [pending] that would affect us."
ISO New England currently only has federal tariff authority to contract for generation that is planning to suspend operations to remain online to ensure the reliability of the transmission system, but ISO New England may face a more serious capacity issue as more conventional generation retires.
Asked whether ISO New England might consider seeking FERC authority to enter into reliability-must-run contracts for capacity, van Welie said, "That is something we would have to consider if the need were to arise. We do not have that need today."
Such a change would have to go through ISO New England's stakeholder process, which would take time.
ISO New England's next Forward Capacity Auction, for the planning year 2020-21, starts Friday with more than 40 GW of capacity qualified to compete to meet the projected need of about 34 GW, van Welie noted, but some states are considering entering into long-term contracts or other out-of-market incentives to attract more clean energy resources.
"However, these contracts and incentives could have unintended consequences," van Welie said. "Resources with guaranteed revenue streams could artificially suppress prices in the marketplace. That could deter new resource investments and hinder retention of existing resources, ultimately undermining resource adequacy."
The restructuring of New England's electricity sector has created substantial benefits, including "one of the most efficient generation fleets in the country," low wholesale power prices and increased industry innovation, he said.
"The region's challenge is to find a way to maintain competitive markets that appropriately reward both clean-energy resources and the conventional generators that will be needed for the foreseeable future," van Welie said. "It's a very difficult market design problem."
Without market rule adjustments, state incentives for clean energy would tilt the market in such a way as to send inappropriately low price signals, thus prompting resources to seek to return to a cost-of-service regulated electricity system.
"Such a system will undermine the benefits of competition and deter the investments needed to maintain resource adequacy," van Welie said.
Therefore ISO New England and the New England Power Pool and the six states in the ISO New England footprint "initiated extensive discussions over the past year to explore solutions that could achieve state clean-energy goals through the wholesale marketplace," van Welie said.
--Mark Watson, Markham.firstname.lastname@example.org
--Edited by Richard Rubin, email@example.com