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New England power fuel woes likely to worsen

26 Jan 2018 15:48 GMT
New England power fuel woes likely to worsen

Houston, 26 January (Argus) — The New England electric grid operator's increasing focus on natural gas-fired generation will only add to its reliability issues in the coming years, analysts said this week following a report highlighting the operator's challenges.

The ISO-New England's Operational Fuel-Security Analysis released last week indicates that the ISO will have to rely on emergency actions — such as rolling blackouts — in order to protect the grid as early as the winter of 2024-25. Those actions would be the direct result of inadequate natural gas supplies.

The report comes just two weeks after a bout of extremely cold weather during which gas-fired units went without crucial fuel deliveries and some oil-fired plants in the region neared emissions limits for all of January only a few days into the month.

Temperatures in Boston, Massachusetts, fell to as low as -2°F (-19°C) during the winter storm as Algonquin Gas Transmission Citygates prices soared to above $83/mmBtu, an all-time high.

The ISO was able to manage without emergency actions during the cold snap, but as more coal and nuclear units retire in the coming years, it expects shortfalls will occur.

Natural gas power burn should increase in the region by about 30pc in the next five years, averaging 1.3 Bcf/d (37mn m³/d) by 2022, BTU Analytics senior energy analyst Marissa Anderson said.

New England is setting up to increase gas burn despite it being "tremendously difficult" to build any new pipeline capacity through New York to reach the region, Anderson said. She pointed to the New York Department of Environmental Conservation's denial of a key permit to the Constitution natural gas pipeline as a recent example of how interstate pipelines can end up in limbo, stymieing plans to ship inexpensive Appalachian gas to delivery points in New England.

The ISO did not include the potential for new pipeline capacity in any of its analysis base cases, perhaps as a nod to the difficult regulatory atmosphere.

ISO-New England's reliance on gas leaves it open to "a big winter gamble" that will increase the odds of price spikes, Morningstar Commodities Research said. While the ISO acknowledges this reality, its plans "could prove to be a dangerous line to walk," Morningstar said.

The ISO may have to rely on gas imports from Canada or LNG to manage fuel shortages in the future, Anderson of BTU Analytics said. But that supply would come at a premium to Marcellus and Utica shale gas and may not be practical in the long-term.

Renewable generation could bolster the grid, but the ISO would still need a reliable source for baseload generation, which traditionally was served by coal and nuclear units but is increasingly falling to gas-fired plants, Anderson said.

In the meantime the ISO will grapple with pipelines that are constrained on nearly every day of the year.

"The consequences if a pipeline compressor station fails are not good," Morningstar said. "The volatility is there and is not going anywhere anytime soon."