More than 10 years ago, New England set out on the road to develop dynamic, competitive wholesale electricity markets that would create incentives for private investment in diverse sources of supply, transmission improvements, and new technologies to make the region’s electric system more efficient and its resources more cost-effective.
Electric industry restructuring prompted a tremendous amount of economic activity. Billions of dollars in private investment in new, cleaner, more efficient power plants has boosted the region’s supply by more than a third; new transmission lines have improved the flow of power throughout the region; and entrepreneurs have taken advantage of the resulting opportunities to launch “green” businesses and create jobs.
By most measures, the system today is more competitive, efficient, and environmentally friendly than when the region started this journey in the late 1990s.
The six New England states are now setting a course that could guide policy for decades to come, emphasizing the power of natural resources in the form of wind, water, and the sun to reshape how electricity is produced and delivered, while providing numerous incentives to change the way electricity is used.
Ten New England and mid-Atlantic states, including Massachusetts, have formed the Regional Greenhouse Gas Initiative, a market-based compact that mandates a 10 percent reduction in carbon dioxide emissions by 2018. In addition, Massachusetts and four other New England states approved Renewable Portfolio Standards, setting individual goals for how much electricity should come from renewable sources. Each state has different targets and deadlines, but generally they mandate that between 20 percent and 30 percent of the region’s projected total electricity demand be met by renewable sources and energy efficiency by 2020.
The objectives of these initiatives are twofold: to provide environmental benefits and to diversify the sources of fuels used to produce electricity. The latter effectively creates a hedge against volatile fossil fuel prices, which are the key influence on the region’s electricity prices.
It’s an ambitious agenda, and it brings us to an important crossroads.
new england has tremendous potential to develop native wind power. In addition, opportunities abound to import clean energy from hydro, wind, and even potential nuclear sources in Canada. But the region will need to undertake an extensive expansion of the power grid to ensure these new resources can be fully deployed. This will require a large, upfront investment in resources, infrastructure, and technology—investment to build the wind farms that will produce the power, investment to expand the transmission system that will deliver it to consumers, and investment in new technologies to foster implementation of a smart grid so that system operators can integrate renewable energy reliably while giving consumers greater control over their electricity use.
For policymakers making a decision about our region’s energy needs, this situation is similar to the choice that consumers face when purchasing a car. Should the driver consider a plug-in electric vehicle or a gasoline-powered, but fuel-efficient, compact? Electric cars require a higher outlay of cash up front compared with gasoline-powered ones. But over time, depending on the direction of gasoline prices, the fuel savings could even out the higher price tag. In addition, the non-quantifiable environmental benefits may be worth the cost differential to many consumers.
To help inform policymakers, the ISO conducted a study at the request of the six New England governors to determine how much infrastructure would be needed to develop and integrate varying amounts of onshore and offshore wind power—and how much it would cost. The analysis, published in the fall of 2009, showed that higher concentrations of renewable wind energy could result in lower wholesale electric energy prices and emission reductions, but the cost to build the transmission needed to deliver these resources to market would be significant.
Because the best sites for wind development are located far from the region’s population centers, a large amount of wind resources would require a new “backbone” transmission loop running through five of the six New England states. The cost estimates for developing various amounts of wind power, from 2,000 megawatts to 12,000 megawatts, range from $1.6 billion to $25 billion. Access to a combination of in-region and nearby Canadian wind power would meet approximately 15 percent of the region’s energy needs with clean resources and would require approximately $10 billion in new transmission investment.
The governors also wanted to know whether it would be more cost-effective to build wind power here in New England or have it built in the Midwest and transported here. Development of transmission to deliver and integrate equivalent amounts of energy from large-scale wind
projects located in the Midwest to the Northeast could cost an estimated $20 billion to $47 billion. In addition, the region would lose the economic benefits of local construction investment and the “green” jobs that come with building and operating native wind farms.
This sizeable, upfront investment would cause anyone to pause, but it leaves policymakers with some complex economic evaluations to make. And to further complicate the picture, there are key inputs into that equation that are still unknown.
For one, there is still no resolution over the creation of a national energy policy. The fate of legislation in Congress is unclear, leaving uncertainty about the levels of renewable resources that will be required, carbon emission limits, and transmission funding mechanisms.
There are also key questions yet to be resolved locally. One is the cost of renewable power compared to electricity produced by more conventional resources. Are New England consumers willing to pay more in the short-to-medium run for potential longer-term economic and environmental benefits?
There also remains the issue of how to pay for the transmission build-out that is being envisioned. New England has a well-tested funding mechanism for transmission projects that improve the reliability of the regional system. The costs for these projects are shared throughout the region. But the region currently doesn’t have a similar funding mechanism for transmission investments that facilitate the integration of wind resources, although developers are proposing to bundle the cost of transmission and renewable energy together, thereby passing transmission costs onto the buyer of renewable power.
The New England states are farther down the road than most other regions when it comes to setting and implementing policy to foster development of renewable resources and encourage conservation. But the region has reached a critical juncture. Before we can proceed, several moving parts need to come together—guidance in the form of federal energy policy, a regional plan that is responsive to federal and state policies, and a willingness by consumers and their elected representatives to support the upfront investment that will be necessary to build a system that will meet the region’s energy and environmental goals. In other words, are consumers ready to make the investment in that electric car?
Gordon van Welie is president and chief executive of ISO New England Inc., the region’s power grid operator.