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Reliance on natural gas fuels risk to grid

New Hampshire Union Leader

March 17. 2013 1:01AM

New Englanders braced for the coldest weather of the winter the week of Jan. 21, knowing temperatures were going to dip below zero. What they didn't know was that controllers of the New England power grid came dangerously close to imposing roving blackouts due to constraints on the supply of natural gas that fuels most of the region's power plants.

Then on Feb. 8, as the region braced for Winter Storm Nemo, it happened again.

"If we had lost one more big generator or a transmission line, we would have had to resort to our emergency procedures," said Vamsi Chadalavada, executive vice president and chief operating officer for the Independent System Operator of the New England power grid (ISO-NE), based in Holyoke, Mass. "Those procedures are to call on help from neighboring areas, then to call for voluntary conservation, and if that's not sufficient, to institute controlled power outages ... We came quite close."

Chadalavada described those tense moments in the control room at ISO-NE as the most stressful in recent memory. "And the period between them was equally stressful," he said, "because the uncertainty persisted. Although those were the peak periods of uncertainty, it did not disappear due to the continuation of the same conditions."

No one wants to think the New England power grid is subject to roving blackouts under the worst conditions, let alone during the relatively normal winter now ending. Peak demand on the system hit 20,800 megawatts during the early January crisis. That's high, but not nearly as high as the historic peak of 22,818 megawatts in 2004, when the economy was better and the weather was colder. But there was no talk of roving blackouts in 2004.

So what's happened in the intervening decade? In a word, natural gas. The region has become increasingly reliant on the fuel, while pipeline capacity into New England has been largely unchanged, resulting in supply shortages and price hikes during periods of peak demand.

Prices headed upward

While the natural gas revolution gave New England the lowest wholesale electricity prices the region has seen since 2003, the party may be coming to an end. The shortages experienced this past winter will come home to roost in pricing for the next round of contracts.

Natural gas trading for less than $3 per mmbtu on the wholesale market last summer peaked at $34.65 on Jan. 24 and was at $8.63 on March 14. What does that portend for future electricity and home heating prices for consumers as new long-term contracts with suppliers come up for negotiation?

"It's very difficult for me and the ISO to predict that because we have very little visibility into the way each state structures its retail contracting," Chadalavada said. "There will be an upward direction because of what we experienced this past winter, but the exact values, we just don't know."

The price increases won't be due to lack of supply. There's plenty of natural gas, just not enough pipeline to get it into New England. With only five pipelines into the region, additional transmission capacity will be key to the region's energy future.

"The rest of the country is swimming in natural gas, but we seem to be having a problem with it," said N.H. Public Utilities Commissioner Michael Harrington at an ISO-NE conference in Nashua on Wednesday. "The preferred solution is to get more pipeline."

ISO-NE has unveiled a new strategic plan that it hopes will have exactly that effect, by creating incentives for power plants to lock up natural gas supplies years in advance. That in turn, hopefully, will motivate gas line companies to create more transmission capacity.

"No one is running out and building new pipeline," Harrington said, describing the current scenario, in which pipeline builders want 20-year commitments, but energy plant owners are not willing to bet beyond five.

A changing fuel mix

While the debate over the environmental impact of hydro-fracking continues in upstate New York, Pennsylvania, and nearby New Brunswick, Canada, where massive deposits of shale gas are waiting to be tapped, the extraction continues and the impact on energy markets has been a game-changer.

"Today, with shale gas, the technology change has released the potential for what I call a national treasure with regard to the supply of natural gas for many decades to come," said Robert Keating, a principal for the energy consulting group, Keating Strategies, and moderator for a panel discussion at the ISO event in Nashua. "Studies show 100 years of supply for economically recoverable resources, which will not even begin to plateau until 2040."

In 2000, the fuel mix used to fire up New England power plants was as well-balanced as a good 401(k) portfolio, with 31 percent nuclear, 22 percent oil, 18 percent coal, 15 percent natural gas and 13 percent renewables. PSNH and its Northern Pass partners have argued that the Northern Pass project, designed to bring hydro-electric power from Quebec into the New England grid, will help expand the renewable portion of the mix if it is ever approved.

For now, natural gas dominates, with 52 percent of the market. Nuclear and renewables are holding steady, while oil and coal virtually disappeared, called upon only in emergencies like last January and February.

The reasons are no mystery. Natural gas, because of the abundant supply, is far cheaper and burns cleaner. Coal and oil are not viable in the long run due to costs and environmental concerns. Nuclear plants are aging and replacements are not coming online. ISO-NE predicts that, in the not-too-distant future, New England's energy mix could be 60 percent natural gas, 33 percent wind and 4 percent biomass (wood).

The pipeline expansion needed to make that possible is not just a matter of energy policy, but one of economic justice, according to Stephen Leahy, vice president for policy with the Northeast Gas Association. He told the group meeting in Nashua that businesses will locate where natural gas is available. A region at the end of the pipeline will be at a disadvantage.

ISO-NE is pursuing a number of initiatives to address the problem. By increasing the financial reward for generating plants that deliver energy when requested, and instituting financial penalties for those that don't, it hopes to encourage more long-term contracts that lead to less vulnerability.

"At the end of the day, if the incentives we design are strong enough, we believe the market will be creative and work around them," Chadalavada said. "If there is a pool of generators who are willing to sign contracts for a certain length of time, that might be enough to get a pipeline built."

Something has to give, Harrington said: "We can't go into next winter hoping the temperature stays above average and we never see six inches of snow."

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