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Electricity market: Pricing change can mean free power

New Hampshire Union Leader

July 01. 2017 7:42PM

AUBURN - The so-called shoulder months of spring and fall are usually the time of lowest energy prices in New England, and the past spring was no exception.

In April and May, and again in September and October, the need for energy can decline to such a low level that the grid operator sends out a notice to power plant owners asking some of them to get off the grid.

But wind power or solar power generators can't shut off and start up on demand, and so in rare cases plant owners will actually pay customers to take their energy so they can keep operating.

"During a four-day period from May 4 to May 7, electricity pricing in the New England wholesale energy market reached an unusual low," according to Gus Fromuth, founder and managing director of Freedom Energy Logistics in Auburn.

The company has for years built a business model around connecting large energy customers directly to the wholesale market through the New England Power Pool.

A 2014 change in the energy market rules, called the Energy Market Offer Flexibility Project, makes "negative pricing offers" possible, although only the biggest customers can take advantage of the option.

"Some of the region's largest wholesale energy users were paid to use electricity because the cost of generating it was negative," Fromouth said. "So instead of paying for the electricity that they consumed, businesses received a credit for what they used, thanks to a program of buying energy directly from the wholesale market."

Five Freedom customers in Maine got cash credits on their electric bills totalling about $1,700 for participating in the program made possible by the Flexibility Project.

Officials at ISO-NE, the independent grid operator, called it the most "extensive market revision the ISO has undertaken since 2003."

The new reforms gave generators the flexibility to submit a different offer for every hour of the following day, and update offers during the operating day.

"Another key change is that the market parameters have been expanded to include negative offers," Vamsi Chadalavada, ISO's executive vice president and chief operating officer, said at the time.

"Before, the minimum offer was zero dollars per megawatt-hour. Now, resources can provide power at prices as low as minus-$150 per megawatt-hour - or to put it another way, they pay as much as $150 per megawatt hour to stay online and produce power."

Maine at an advantage

The advent of large-scale wind and solar power, particularly in Maine, is a major part of the change. Wind and solar operators get income from generating energy through various incentives that include renewable energy certificates and tax credits, which are based on energy generated.

"When not performing, they can't sell renewable energy certificates or get tax credits, so it's in their interest to perform as much as they can, even if they don't derive any meaningful energy income, or if they have to pay the ISO to operate, it's still financially worthwhile for them not to shut down a wind turbine or disconnect a solar array," Fromuth said.

"We had several companies in Maine that received a credit, and several in Rhode Island," he added. "No one in New Hampshire got a check, but some received a bill that was smaller than when you went to lunch."

Since very little energy in New England is purchased on the "real-time" spot market, the negative pricing option is not in widespread use, according to ISO officials.

Variations in use

The volume of energy in New England sold at negative prices on the spot market can be as low as zero percent, as it was in February 2015, or as high as 3.9 percent in July 2016, according to statistics from ISO-NE.

Buying power on the spot market, or "real-time pricing" as it's called, is not for everyone. The up-front costs of joining the New England Power Pool and maintaining an account limit the option to big energy users like a manufacturer or an office park.

But Fromuth believes the option will become more popular and more accessible as more large-scale solar and wind power comes on line.

"We've been buying directly from the New England Power Pool for almost a decade now, and have done extremely well," said Paul Hendry, plant manager at Shipyard Brewing Co. in Portland, Maine, one of the recipients of credits in May.

"I believe this is the first time we've actually had a negative balance for an entire billing cycle, but I hope it's not the last," Hendry said.

The fact that renewable energy producers pay people to buy their energy, albeit rarely, raises questions about the subsidies and tax credits they enjoy.

"It looks like we are at the point now where the subsidization process has lifted the tide for these folks to the point that they don't need to be a foster child of the government anymore," said Fromuth. "Seems like we have found a way to keep the solar business abundantly cared for, so there is no existential threat to its continued growth, and that's a good thing."

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