Natural Gas and Electricity Coordination – Experiences and

Challenges

Challenges Facing the New England Power System

Gordon van Welie, President and CEO, ISO New England 2015 IEEE Power & Energy Society General Meeting

July 28, 2015

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New England Has Seen Dramatic Changes in the Energy Mix: From Oil and Coal to Natural Gas

2

Percent of Total Electric Energy Production by Fuel Type (2000 vs. 2014)

Source: ISO New England Net Energy and Peak Load by Source Other renewables include landfill gas, biomass, other biomass gas, wind, solar, municipal solid waste, and miscellaneous fuels

• Salem Harbor Station (749 MW) – 4 units (coal & oil)

• Vermont Yankee Station (604 MW) – 1 unit (nuclear)

• Norwalk Harbor Station (342 MW) – 3 units (oil)

• Brayton Point Station (1,535 MW) – 4 units (coal & oil)

• Mount Tom Station (143 MW) – 1 unit (coal)

• Additional retirements are looming

Major Retirements Underway:

The Region Has Lost—and Is at Risk of Losing—Substantial Non-Gas Resources

3

Energy Efficiency Is Slowing Peak Demand Growth and Flattening Energy Use

4

Source: Final ISO New England EE Forecast for 2019-2024 (April 2015)

28,000

29,000

30,000

31,000

32,000

33,000

34,000

35,000

Summer Peak (MW)

125,000

130,000

135,000

140,000

145,000

150,000

155,000

Annual Energy (GWh)

The gross forecast of peak demand and energy use

The forecast minus the impact of EE participating in the Forward Capacity Market to date

The forecast minus anticipated EE growth

State Policy Requirements Are Driving Proposals for Renewable Energy

5

* State Renewable Portfolio Standards (RPS) promote the development of renewable energy resources by requiring electricity providers (electric distribution companies and competitive suppliers) to serve a minimum percentage of their retail load using renewable energy. Vermont’s new Renewable Energy Standard has a ‘total renewable energy’ requirement (reflected above), which recognizes large-scale hydro and all other classes of renewable energy.

ISO New England Forecasts Strong Growth in Solar PV

6

Source: Final PV Forecast (April 2015); Note: MW values are AC nameplate

Infrastructure Will Be Needed to Deliver Energy from Proposed Resources: Natural Gas and Wind Power

7

All Proposed Generation Developers are proposing to build more than 12,000 MW of generation, including 8 GW of gas-fired generation and 4 GW of wind

Wind Proposals

Source: ISO Generator Interconnection Queue (June 2015) FERC Jurisdictional Proposals Only

ME 3,307 MW

NH 91

MW

VT 152 MW

MA 472 MW

Region Has Made Major Investments in Transmission Infrastructure to Ensure a Reliable Electric Grid

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Source: ISO New England RSP Transmission Project Listing, June 2015 Estimated future investment includes projects under construction, planned and proposed

Cumulative Investment through June 2015 $7.2 billion

Estimated Future Investment through 2019 $4.8 billion

Annual Investment in Transmission to Maintain Reliability (in billions)

Elective Transmission Proposals Are Vying to Move Renewable Energy to New England Load Centers

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• Ten elective transmission projects have been proposed, representing more than 7,300 MW of potential imports, as of June 1, 2015 – Only a subset will likely be developed

• Primarily large-scale wind resources from northern New England and hydropower from eastern Canada

Source: ISO Interconnection Queue (June 2015) http://www.iso-ne.com/system-planning/transmission-planning/interconnection-request-queue

Region Has Not Developed Gas Pipeline Infrastructure to Keep Pace with Growth of Gas-fired Generation

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0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1997 1999 2001 2003 2005 2007 2009 2011 2013

Natural Gas

Oil

Biomass

Fuel Cell

Hydro

Solar

Wind

Nuclear uprate

Cumulative New Generating Capacity in New England (MW)

New England Shifts to Coal and Oil in the Winter

11 D

aily

En

ergy

MW

h

0

50,000

100,000

150,000

200,000

250,000

December 1, 2014 January 1, 2015 February 1, 2015

Daily Energy for December 2014 - February 2015 (MWh)

Oil

Coal

Natural Gas / LNG

Winter 2014‒2015 Fossil Fuel Mix

Natural Gas and Wholesale Electricity Prices Are Linked

12 El

ectr

ic E

ner

gy $

/MW

h

Fuel $

/MM

Btu

Monthly Average Natural Gas and Wholesale Electricity Prices in New England

Hurricanes hit the Gulf

Before the Recession and

Marcellus Shale gas boom

Winter 2012/2013

Winter 2013/2014

Record low natural gas and wholesale electricity prices

Winter 2014/2015

Natural Gas Prices are High During the Winter Relative to Other Regions

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Winter

2012/2013 Winter

2014/2015

Winter 2013/2014

Underlying natural gas data furnished by:

Fuel

$/M

MB

tu

A Comparison of the Last Two Winters

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Why were prices less volatile this past winter?

• 2014/2015 Winter Reliability Program provided incentives to fill tanks before the start of the winter

• Coldest winter weather happened in February, when days were longer and demand was down

• High forward prices, due to high prices the previous winter, attracted large supplies of LNG to the region

• Oil prices were half what they were a year ago

Winter

2013/2014

Winter

2014/2015

%

change

Average monthly

temperature (°F) 26.5 25.5 - 3.8%

Total energy

consumption (GWh) 33,991 33,654 - 1.0%

Peak demand (MW) 21,453 20,556 - 4.2%

Date of peak 12/17/2013 1/8/2015 -

Average wholesale

energy price at Hub

($/MWh)

$137.60 $76.64 - 44.3%

Average gas price at

Algonquin ($/MMBtu) $19.33 $10.70 - 44.6%

Total value of energy

markets (in billions) $5.05 B $2.77 B - 45.1%

What Actions Has the ISO Taken to Improve Gas-Electric Coordination?

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• Increased information sharing and operational interfaces with natural gas pipelines

• Shifted the day-ahead energy market timeline to better align the electricity and natural gas markets

• Implemented energy market offer-flexibility enhancements

• Strengthened incentives for resources to perform during stressed system conditions (i.e., reserve shortages)

• Strengthened long-term incentives through the capacity market for resources to invest in operational improvements and secure fuel arrangements to ensure resource performance (“Pay for Performance”)