FACED WITH POWER plant closures, New England’s regional power grid operator is paying out an estimated $4 billion in incentives to ensure adequate supplies of electricity three years from now.
ISO-New England said the cost of the incentives, which are used to spur investments in new generating plants, energy efficiency measures, and electricity demand reduction programs, has been rising sharply. From 2008 to 2016, the cost of the incentives hovered between $1 billion and $1.8 billion a year. In the auction for 2017, the cost jumped to $3 billion and it soared 33 percent to $4 billion for 2018.
The cost is rising as the need for new sources of electricity is increasing. By the middle of 2017, ISO-New England said 10 percent of the region’s existing electrical generating capacity is expected to retire, such as Brayton Point in Somerset, whose owners announced last year they planned to close the 1,500-megawatt coal-fired plant in 2017.
The incentives are awarded through an auction process designed to yield power supply commitments three years from now at the lowest possible price. In this year’s auction, about 84 percent of the power needs for 2017 came from existing generators in the region and imports from New York and Canada. The remaining 16 percent came from three new power plants – one in southeastern Massachusetts and two in Connecticut – as well as commitments by big consumers of electricity to reduce consumption during periods of shortage.
The auction took place across four zones in New England – Connecticut; Greater Boston/northeastern Massachusetts; central Massachusetts/ Vermont/ New Hampshire/Maine; and southeastern Massachusetts/Rhode Island.
The auction clearing price across the first three zones was $9.55 per kilowatt month, but supplies were inadequate in the southeastern Massachusetts/Rhode Island zone so no auction was held there. Instead, the starting auction price of $17.73 per kilowatt month was awarded for 353 megawatts of new generating capacity and a price of $11.08 was imposed for existing resources.
The cost of the incentives, combined with the value of electricity sold in the region, provide a picture of New England’s wholesale bill for electricity. That bill has been rising sharply. In 2012, the region spent a total of $6.4 billion — $5.2 billion on electricity and $1.2 billion on incentives. In 2013, the tab rose to $9.1 billion – $1.1 billion on incentives and $8 billion on electricity. Last year, the bill was $10.2 billion — $1.1 billion on incentives and $9.1 billion on electricity.
The rising tab for electricity comes at a time when officials in all six New England states are grappling with how to expand the supply of power in the region while complying with laws requiring reduced carbon emissions. Environmentalists want to see states rely more on renewable forms of energy, which tend to be more expensive and lack scale. Business groups, meanwhile, are pushing for new pipelines that would bring cheap natural gas from Pennsylvania to the area.