Can New England maintain lower power prices?

oilchart_iStock_000053504052_FullSome encouraging news as New England continues to watch the snow melt from this past winter: power prices in March were almost half that of prices a year ago.

The news comes from grid operator ISO New England (ISO) in a report to the New England Power Pool Participants Committee. The monthly market operations report states that day-ahead and real-time locational marginal prices were almost 46 percent lower during March 2015 than in March 2014. Day-ahead prices were $64.25/MWh in March, which was 45.7 percent lower than February 2015 and 42.2 percent lower than March 2014.

One reason is the ISO’s Winter Reliability Program, which it put into effect after the 2013-14 Polar Vortex. During that bitterly cold season, heating demand was high and fuel supplies were stretched thin. In response, the ISO developed the reliability program to ensure a range of generators were online to produce sufficient supply. Measures included dual-fuel resource capability, participation to offset generators’ carrying cost of unused firm fuel, and compensation for demand-response services.

This winter’s delayed cold snap also kept demand down. New England was spared harsh weather until February. December 2014 saw 14 percent fewer heating degree days than December 2013 and February 2015 saw about 22 percent fewer days compared to February 2014. All the snow kept demand down as well: since schools and businesses were closed, facilities did not need to maintain comfortable heating levels.

Other reasons for the lower prices included a global glut of liquefied natural gas coupled with a sharp decrease in oil prices, making oil-fired generation more economical to utilize, according to Platts. These factors kept gas and power price volatility down. The average natural gas price in the region was $7.50/MMBtu in March 2015 compared to $16.50/MMBtu in February 2015.

What does this mean for future power prices in New England?
The good news is that there is some indication of downward pressure on pricing.

If the meteorologists are correct, warmer temperatures should be here to stay. According to Accuweather, normal to above-normal temperatures should be in store for the region. That means lower demand for heating, so less draw-down on supply.

Lower demand is also good for pipeline infrastructure. Interstate natural gas pipeline capacity is being stretched in the region, especially during the winter, which contributes to higher energy prices. And, the ISO says that improvements to natural gas pipeline capacity are still years away.

But there are also upward pricing pressures.

The ISO believes that generation may become an issue. Oil- and coal-fired power plants produce emissions. The more a generator is operational, such as during a cold snap, the more emissions are discharged. Emissions increased in 2013 as higher-emitting units went online to serve peak demand. Also, emission standards limit the run times of oil-burning generators, which decreases production.

On top of this, more than 10 percent of the region’s generating capacity will be retired by 2018. Last year, two large power plants were taken offline permanently: Salem Harbor and Vermont Yankee Nuclear, with a combined output of 1,200 MW. Brayton Point Station, which produced heavily through the past winter (1,535 MW), will be retired in 2017. Another 6,000 MW may also face retirement.

However, despite these constraints and concerns, the ISO reports that its most-recent forward capacity auction will be adequate to meet the region’s needs of installed capacity requirement through 2018-19.

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