Rapidly changing power generation portfolios and pressure to incorporate public policy goals within wholesale power markets are national forces that are hitting the New England Independent System Operator's markets in particular, says president and CEO Gordon van Welie.
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A major shift toward natural gas-fired generation and fuel security challenges are of acute importance as the ISO works to adjust market rules to accommodate its evolving energy system.
Van Welie joined ISO NE as executive vice president and chief operating officer in 2000 before being appointed president and CEO the following year.
Prior to joining the grid operator he worked as an executive at Siemens Power Transmission & Distribution.
Earlier in his career, van Welie held positions at South African utility ESKOM. ISO NE oversees the region's bulk power grid and wholesale electricity markets, covering Connecticut, Rhode Island, Massachusetts, New Hampshire, Vermont and much of Maine.
ISO NE's power generation mix has dramatically changed since the beginning of the decade, with coal and oil providing 40% of the grid operator's energy in 2000 versus only 3% from those resources in 2016, van Welie said during a recent phone conversation.
"What's happened here is we've transitioned away from the oil and coal fleet and replaced those resources with renewable energy and gas", he said.
One of the major forces at play in the marketplace today is the growth in renewable energy largely being led by state decarbonization goals.
There are three forms of incentives states are creating to move the system towards cleaner energy sources. "States are working steadily over time to put a price on carbon," he said.
And certain states like Massachusetts are working to legislate the reduction of carbon emissions from the power sector by enacting regulations from 2018 on that will ratchet down carbon emissions in the state by 2.5%/yr.
States are also creating incentives in the form of renewable energy credits, which are essentially payments to renewable energy producers.
"They get an extra payment from the state. Those monies are collected from retail consumers," which creates an incentive for renewable energy developers to build new renewable resources.
And finally, the more recent activity has been related to states seeking to enter into large power purchase agreements that are targeted toward specific resource types.
For example, Massachusetts has two procurements to purchase just over 9 TWh of clean energy.
Separately, the legislature has put forward a requirement to have the Public Utility Commission commit the distribution companies to procure up to 1,600 MW of offshore wind.
"These actions have stimulated a big discussion in the region that started off under the label of IMAPP – Integrating Markets and Public Policy – that eventually became a concrete proposal by the ISO called CASPR – Competitive Auctions with Sponsored Policy Resources."
The idea was to create a pathway for these resources being contracted for by the states to buy into the capacity markets.
That proposal is currently underway and will come to a vote at the December 8 New England Power Pool Participants Committee meeting, after which it will be filed with the Federal Energy Regulatory Commission "in the December timeframe."
NEPOOL is a private group of market participants, functioning in an advisory role to ISO NE.
The ISO is trying to balance the states' needs for more clean energy in the resource mix with price formation in a way that does not destroy incentives for merchant developers to invest in the market.
Fuel security is a regional challenge
The ISO has added about 14,000 MW of combined-cycle gas generation to the region over the past 15 years, "which is pretty dramatic if you consider that we are a 32,000 MW system," van Welie said.
That incremental gas -fired capacity has been added to "pretty much the same pipeline system that was there 20 years ago," he said.
Gas distribution companies are currently switching customers over from oil to gas heating and those companies own much of the gas pipeline transportation rights.
In the summer these companies can sell pipeline capacity to power generators, but in 2004 "we started seeing the limits of that with regard to being able to supply gas generation when things get really cold," he said.
Distribution companies do not sell as much capacity in the winter because they need to supply heating customers, which gradually squeezes gas generators off the pipelines, causing them to switch to more expensive fuels, van Welie explained.
The alternatives are LNG , which has typically been the most expensive fuel, or fuel oil.
Generators in New England are typically constrained to running fuel oil to about 30 days a year due to state-level emissions regulations.
And many of these generators only have about a 10-day supply onsite. Due to pipeline constraints, ISO NE generators end up relying a lot on non-gas resources during winter and some summer peak periods.
"So what happens to the supply of fuel into the region as we gradually retire the non-gas resources but we do not add any gas infrastructure, where is the tipping point from a reliability point of view?"
The ISO began a study to address this issue about a year ago from the wholesale market paradigm that assumes more efficient resources displace less efficient resources.
"And so you would expect a turnover to take place through the capacity market, which is the mechanism to ensure enough resources are available in the future, but also to coordinate marketplace entry and exit," he said.
The fuel study will assess regional risks and determine the best course of action as part of an analysis that will likely take about a year.
"That finding will lead us to whether we should make any changes to wholesale market design or not," van Welie said.