During the last few years, inadequate infrastructure to transport natural gas has at times affected the ability of natural-gas-fired plants to get the fuel they need to perform. This energy-security risk has become a pressing concern in New England, considering the major role natural-gas-fired generation plays in keeping the lights on and setting prices for wholesale electricity.
In 2000, natural gas fueled just 15% of the region’s electricity. Since then, it has become the dominant fuel used to produce electricity in New England, displacing higher emitting and less economic power plants. With supply from the nearby Marcellus Shale and relatively low construction costs, natural gas continues to be a top fuel choice for new generators. These new power plants are not only some of the most efficient in the country, but in the world. (Learn about the resource mix.)
The shift to natural gas has benefited the region in many ways:
During many recent winters, regional gas utilities have been using most, if not all, of the capacity on the pipelines that carry natural gas into New England. This is particularly true during very cold periods when heating demand is high. This leaves very little to no pipeline capacity for electric generators, which creates a number of concerns for the power system:
Energy-security risk is not as apparent during mild winters, when heating demand for natural gas is lower and there’s more natural gas available for generators. However, New England winters are unpredictable. On the coldest days, fuel constraints could sideline thousands of megawatts of natural-gas-fired generation. When that happens, system operators turn to power plants with stored fuel—coal, oil, or nuclear—to meet demand. If the region were to experience a “perfect storm” of problems with grid resources, ISO system operators could be forced to use special measures to protect the grid. Those could include asking the public to conserve electricity or, in extreme cases, ordering load shedding (rolling blackouts affecting blocks of customers). This risk is likely to grow unless the region can find ways to offset the loss of more non-gas-fired power resources as they retire.
Energy-security risks may be more acute in New England than in most other regions because New England is “at the end of the pipeline" when it comes to natural gas and the other fuels used most often to generate the region’s power. New England has no indigenous fossil fuels and therefore, fuels must be delivered by pipeline, ship, truck, or barge from distant places. Additionally, the natural gas pipeline system within New England is relatively small, and its access to the rest of the North American pipeline network is limited. This also makes the region vulnerable to pipeline interruptions. In regions with a more robust pipeline network, a failure at a single point on the pipeline system typically can be contained to a local area and routed around, but such an outage in New England will likely create significant impacts.
The tremendous growth in natural-gas-fired generating capacity is shown in the graph below. But the natural gas pipelines that deliver low-cost shale gas into the region have not been expanded at a commensurate pace. Further, pipelines are built and sized to serve customers with firm contracts for capacity, typically gas utilities, not electricity generators.
Because generators have no guarantee for when or how long they’ll be called to run—and there’s no practical way for them to store excess pipeline gas or electricity on site—contracting for pipeline capacity only when needed helps natural-gas-fired generators keep their costs as low as possible to maintain competitiveness in the wholesale electricity markets.
While that strategy works for most of the year, on cold days the pipelines are running at or near maximum capacity solely to meet heating demand. During several recent winters, this situation has severely limited the delivery of fuel to much of the region’s power plants, which, in turn, threatened the reliable supply of electricity and drove up wholesale electricity prices and air emissions.
Energy security isn’t just about natural gas. Adequate arrangements for oil delivery are also a concern for both generators that run exclusively on this fuel source and those natural-gas-fired generators that have the ability to switch to oil.
“Dual-fuel technology” that allows generators to switch to oil may be the most cost-effective investment natural-gas-fired generators might take to ensure they can run when pipelines are constrained. However, state restrictions on air emissions may limit their ability to run on oil. Consequently, more natural gas plants may need to turn to LNG in winter when pipeline gas is unavailable or its price spikes.
While more natural-gas-fired generators may turn to LNG, several factors can impede generators’ access to LNG when it’s most needed.
Contracts for winter deliveries of LNG, as well as the construction of on-site LNG storage, are among the options generators could invest in to satisfy performance requirements in the capacity market.
Addressing the energy-security issue is currently the region’s highest-priority challenge. While the ISO doesn’t have the authority to require generators to make long-term investments in fuel supplies, we have been developing tactics for the past six years to mitigate the fuel-security risk, such as:
Although PFP provides an efficient market mechanism to boost performance, it may not address all aspects of the region’s energy-security challenges that emerged after PFP was developed. PFP’s pricing provides a strong real-time signal for resources to prepare for tight operating conditions and to perform when the system is in an “at-risk” situation, but it’s not a forecasting tool—it does not signal the risk in advance. Given that the region’s fuel infrastructure can become tightly constrained and fuel logistics complex during harsh winter conditions resource owners need advance notice of energy constraints to that they have time to make fuel delivery or other preparations. This will become more critical as fuel constraints continue to tighten with resource retirements and progressively stricter emission limitations on the power industry.