May 9, 2016

Mass. banking on natural gas, renewables to replace retiring plants

As several thousand megawatts on the New England electric grid prepare to retire, Massachusetts officials are looking to natural gas, hydropower and wind to replace retiring generation and to power the commonwealth going forward.

At least 4,200 megawatts of non-gas generating capacity across the region are scheduled to retire over the next few years, according to ISO New England, the region's grid operator, and an additional 6,000 megawatts from gas- and oil-fired generators are considered at risk for closure. New England is looking at a possible loss of 30 percent of its energy resources over the next four years, according to ISO-New England.

The majority of the scheduled closures are for plants generating fuel with coal or oil, which get most of their use during high-demand periods when natural gas transmission is stretched thin and needs backup in order to keep the power on. Pilgrim Nuclear Power Station in Plymouth, the state's only nuclear plant, is also scheduled to close in 2019.

State officials are hoping renewable energy sources, natural gas and the increased infrastructure that comes with them will replace retiring plants. Gov. Charlie Baker filed legislation last year to expand hydropower's influence in Massachusetts, and the legislature will likely debate a comprehensive energy bill, including proposals for both hydro and wind power, at some point this year.

Central Massachusetts businesses that are big consumers of energy – such as manufacturers – who pay some of the highest prices in the country for their power, are hoping the state will increase energy transmission to keep costs low.

Judith Judson, commissioner of the Massachusetts Department of Energy Resources, said the state will rely on a "combo platter" of fuels going forward, including making energy storage solutions part of the discussion.

"Our strategy is to develop a balanced and diverse portfolio," Judson said.

Hydro & wind

Last year, Baker filed legislation aimed at meeting the state's obligations under the Global Warming Solutions Act of 2008, which requires greenhouse gas emissions to be reduced to 25 percent below 1990 levels by 2020 and to 80 percent by 2050. When the first Climate Change Plan was adopted in 2010, it assumed that 5.3 percent of that 25 percent reduction would be met through hydropower. Since that power hasn't yet been procured, the commonwealth isn't on track to meeting its goal, according to the bill.

The bill would require electric distribution companies to solicit proposals for long-term contracts for hydropower, bringing between 1,200 and 2,400 megawatts of hydroelectric power to Massachusetts.

In response to Baker's bill, former state environmental affairs secretary Sue Tierney produced a report for the New England Power Generators Association – which represents the region's power plant owners – saying adopting the bill's provisions would cost ratepayers an extra $777 million annually. Another study from Power Advisory LLC for the Massachusetts Clean Energy Partnership said large-scale hydro and wind will save consumers $171 million a year.

Dan Dolan, president of the New England Power Generators Association, said hydro deserves presence in the marketplace, but it shouldn't receive any sort of special treatment written into the law. That could lead to dangerous monopolies and high prices for consumers.

The market is designed to respond to system retirements and incentivize new plants to replace them, he said.

"You're insulating a third of the market from competition and giving contracts to these single entities without them having to compete," Dolan said.

Even though about 10,000 megawatts could potentially retire over the next four years, Dolan said 5,000 new megawatts are either in development or proposed. He cited new natural gas plants in Salem, Sandwich and Medway and new potential developments in Rhode Island and Connecticut. About two-thirds of the new plants will use natural gas, and the remaining third will generate power through wind and small-scale solar.

Since 2013, the region's forward capacity market has added 4,700 megawatts of new capacity, according to ISO New England.

The state is headed in the right direction towards its obligations set forth in the Global Warming Solutions Act, Dolan said. Renewable portfolio standards keep Massachusetts in line with its green goals, and carbon emissions have significantly declined.

Judy Chang, an energy industry analyst at the Brattle Group in Cambridge, said it's important to make sure the state has a variety of fuel suppliers.

"We should make sure that there are enough competitive forces so we don't lock in the ratepayers," she said.

The state legislature, for its part, is close to finalizing its own ideas on what Massachusetts' energy future should look like. In a speech to the Greater Boston Chamber of Commerce in early March, Massachusetts House Speaker Robert DeLeo said the bill will include a procurement process to enhance the role of hydropower and other renewables in-state, and encourage development of offshore wind. Hydro and wind are a natural pair, he said.

"When partnered with wind resources, hydropower can provide energy when the wind doesn't blow. The two are complementary," DeLeo told the Boston chamber.

Natural gas dependence

Although hydro and wind seem to be the most popular fuels at the state level, most of Massachusetts' energy supply comes from natural gas, a fossil fuel which was responsible for generating close to 50 percent of the region's electricity last year. That is a big jump from the year 2000, when it supplied just 15 percent. The fuel's popularity has increased due to its declining prices and its cleaner burning than coal and oil.

ISO New England's 2016 Regional Electricity Outlook says natural gas infrastructure will have to increase over the next few years in order to meet the region's power needs. Yet, pipeline additions have been controversial, with many receiving considerable pushback from the communities they're scheduled to run through.

In April, Houston energy giant Kinder Morgan announced it was suspending its $3.3-billion natural gas pipeline project, citing a lack of binding commitments. Spectra Energy, which is also headquartered in Houston, is planning the Access Northeast project in New England as well.

Cost implications

Keeping the cost of power as low as possible is crucial if the state wants to retain a healthy manufacturing sector, said Jack Healy, president of the Massachusetts Manufacturing Extension Partnership in Worcester.

Manufacturing represents just 9 percent of employment statewide, but it is essential to some of the state's most important industries like biopharmaceuticals, medical devices, and aerospace and defense, according to a 2015 study from MIT Industrial Performance Center. The central region has the state's highest share of manufacturers.

Healy said manufacturers feel since utility companies became deregulated, they haven't done their part to lower costs by signing long-term contracts with suppliers and expanding infrastructure.

About $4.2 billion will be spent on new transmission investment between 2016 and 2018, according to ISO New England's report.

"What we see from utilities, from a manufacturing perspective, is they get a cost, and they pass it on to the customer," Healy said. "The reality here is that there is not a lot of communication between the different sectors – the utilities and the users."

He cited the proposed Cape Wind generation project as an example of a situation where utilities would have had to buy the cost of power for substantially more that they would for, say, natural gas, and then pass the cost on to the ratepayer. Manufacturers will see costs go up and consider moving to a state with lower energy costs, Healy said.

"Manufacturers, in their opinion, are up against the wall. The cost of power is putting people out of business," Healy said. "I don't see companies growing here because cheap energy doesn't make it attractive for people to come."

Both utilities National Grid and Eversource Energy terminated their power-purchase agreements with Cape Wind, rendering the project effectively lifeless, in 2014.

Energy storage

Something that could make a substantial difference in Massachusetts' power landscape going forward is energy storage. Chang, from the Brattle group, said energy storage can be transformative when it comes to improving the electric grid and dropping prices.

"I'm a big believer that energy storage will get the cost down. There is large research and development going on around the world – huge companies are making lots of investments in technology and energy storage," she said. "We've already see lots of progress."

These solutions are being looked into at a state level. About a year ago, Judson announced a $10-million initiative for a two-part study that would look at developing energy storage policy options and incentives the commonwealth can use to attract energy storage companies. A study will be released soon.

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