New England renewables may hurt baseload plants

OREANDA-NEWS. June 10, 2015. The expected growth of wind and solar resources in New England could drain energy revenues that sustain baseload generators and cause more nuclear and coal plants to retire, the region's grid operator is projecting.

The Independent System Operator of New England in a draft report published last week reviewed changes it expects as wind and solar penetration rises. The region has more than 4,000MW of proposed wind capacity and the grid expects it could have 2,500MW of solar by 2024. Adding all those resources would quadruple the region's renewable energy capacity.

Adding more renewables would suppress energy prices in the region because federal tax credits and state subsidies allow wind and solar generators to offer their energy at low prices and still earn a profit. This projected drop in energy prices will push up capacity prices, as generators needed for resource adequacy will need more revenues from the capacity market to keep operating.

This shift in revenue from energy to capacity payments will put "additional financial pressure on energy-dependent resources," such as coal and nuclear plants, making them more likely to retire, the report said. Nuclear plants might earn 10 times more revenue from energy than for capacity, so a small change in energy revenues could push plants into retirement.

About 39pc of the grid's energy last year came from natural gas, 34pc from nuclear, 15.3pc from renewables and 6pc from coal. New England's grid last year paid \\$8.4bn for energy and just \\$1bn for capacity, though capacity costs within three years will rise to \\$4bn/yr.

"The capacity market is going to become more and more important going forward in order to compensate them from a policy point of view what is going to happen in the energy market," the grid operator's chief executive Gordon van Welie said on 2 June at DNV GL's Utility of the Future conference in Washington, DC.

The energy-to-capacity revenue shift could also change the types of new resources added to the grid, the report found, potentially making capacity-dependent peaking gas plants more attractive than the combined-cycle gas plants that have dominated the market in recent years. This change would also align with the need to have more flexible reserves to match variable renewable generation.

New England's grid operator does not expect it needs to change its market rules to maintain system reliability, as it expects an increase in capacity prices will retain and recruit enough resources to reliably operate the grid.