New York — ISO New England president and CEO Gordon van Welie Friday discussed the market operator's thinking about how its wholesale power markets will evolve as the resource mix shifts toward renewable energy while demand increases due to electrification of transport and other sectors.
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"There is no doubt that New England is moving toward a clean energy future," van Welie said during a conference call with reporters held to discuss the recently-released 2020 Regional Electricity Outlook.
The region's resource mix has changed and will continue to change in the coming decades driven by power industry innovation and state policy goals that can best be achieved "by harnessing competitive market forces," van Welie said.
In 2019 New England experienced a mild winter that moderated natural gas prices, a cool summer that limited air conditioning use and "surging amounts" of solar power and energy efficiency, to which the power market responded by producing the second-lowest average prices and lowest energy market value since the current market structure's introduction in 2003, he said.
Low-emitting power generation resources supplied 99.5% of the region's electricity in 2019 and while gas is currently the predominant fuel on the system, about 95% of the resources currently proposed to be built consist of large-scale wind, solar power and battery storage projects, van Welie said.
Accurately forecasting power demand and available supply will become even more important as power supplies are increasingly generated from variable renewable energy resources and demand increases with the electrification of space heating and cooling, as well as electric vehicle proliferation.
The power system will look very different when heating and transportation systems are electrified, and this raises important questions about where the region is headed, van Welie said.
As a result, this year the ISO is launching an effort to forecast power system impacts from EVs and heat pumps, after having recently introduced a new method of solar power forecasting that can be used in day-ahead and seven-day forecasts.
van Welie said future power demand was discussed at a Thursday New England Power Pool meeting with one question being what decarbonizing the economy actually means and what it mean for power demand.
"I think we will become a winter peaking system" as electric heating and EVs increase, driving up power demand more in winter than the rest of the year, he said.
"Understanding that trajectory will be very important for us" and the ISO has committed to do some modeling around that future power system that will allow for more informed conversations with stakeholders about wholesale market design and future transmission investment needs, van Welie said.
TENSION WITH STATES
Several states have signed long-term contracts in recent years to spur renewable energy development, making those resources less dependent on wholesale market revenue which has led to "inherent market design tension," van Welie said, because other resources rely solely on market revenue.
The simplest way to ease that tension would be through implementing a price on carbon dioxide emissions, he said, but there has been no regional consensus on the issue to date so the ISO will continue speaking with state officials about it.
Addressing a reporter's question about carbon pricing challenges in New England, van Welie said he does not think it is insurmountable, but it will take time for people to get comfortable with the idea of a carbon price "and maybe long time."
Developers will remain cautious about carbon pricing until they see a stable emissions valuation structure that incorporates a meaningful price, he said. Policymakers in the Netherlands have been discussing a carbon price in the range of €120/metric ton and European companies have been building offshore wind projects using their balance sheets without PPAs, van Welie said.
There is skepticism in the US about the price being high enough, he said.