Energy & Environment

Natural gas prices predicted to surge this winter

New England may experience price surges for natural gas this winter or early spring as a result of insufficient supply, energy executives say.

The state’s utility regulatory structure, however, should insulate Vermonters from price spikes, energy experts said.

Natural gas generators are a dominant source of power, especially for peak electricity demand periods in New England, but natural gas supply methods haven’t kept up, presenters told attendees Thursday at Renewable Energy Vermont’s 2016 conference and expo in Burlington.

As a result, most of the region is vulnerable to volatile electricity prices, said Tom Dunn, CEO of VELCO, which manages transmission lines for utilities.

Transmission plays an increasingly key role in Vermont’s energy supply, since 90 percent of the state’s power at peak periods comes from out of state, Dunn said. Prior to 2014, when the Vermont Yankee Nuclear Power Plant was online and provided baseline power in state, 25 percent of the power utilities bought during peak use came from out of state.

Tom Dunn

Tom Dunn. CEO of VELCO.

Natural gas already supplies half of New England’s electricity, and that proportion is projected to grow over the next decade, said Kimberly Hayden, an energy attorney with Burlington-based law firm Paul Frank and Collins, who spoke at Thursday’s event.

“Our power grid is becoming more reliant on fossil fuels, both regionally and in Vermont,” Hayden told attendees at the renewable-energy expo.

This winter could see much of New England hit with high electric costs because that reliance has yet to be matched by natural gas pipeline capacity, said Gordon van Welie, CEO of ISO-New England, the group that manages the region’s energy pool, late last month at a panel discussion in New Hampshire.

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Van Welie’s remarks were underscored by an industry report released last week, from a group sponsored by the American Petroleum Institute, that warned of high New England electric costs over the next several years resulting largely from insufficient pipeline capacity.

“If the region experiences a very cold winter … natural gas prices will likely spike as pipeline capacity becomes restricted and oil-fired units and liquefied natural gas (LNG) will be needed to support the demand,” the report, titled New England Energy Landscape Update and published Oct. 3, predicts.

Any significant price hikes in the near future are likely the result of natural gas supply constraints rather than costs directly attributable to renewable-energy, according to documents ISO-New England published in January.

That report, “State of the Grid: 2016,” authored by van Welie states that recent low natural-gas prices heralded the retirement or the “looming” retirement of more than 4,200 megawatts of oil, coal and nuclear plants in New England in recent years. New England’s total generating capacity amounts to around 31,000 megawatts, according to the same report.

Since 1997, 80 percent of new electricity-generation capacity in New England has been in the form of natural-gas plants, the report states, and 63 percent of planned new generation in the region will use the same power source (wind power, to be located overwhelmingly in Maine, accounts for another 33 percent).

Natural gas accounted for 15 percent of New England’s electricity in the year 2000, compared with 49 percent today, according to the report.

This dependence on a single fuel means that New England retail electricity prices will follow wholesale natural gas prices closely, the ISO-New England report states.

But Vermont’s regulatory structure, unlike other New England states, forces utilities to enter long-term supply contracts that are likely to fend off market vagaries such as those van Welie and others have recently warned of, Dunn said.

“Other places are buying their energy contracts for six-month periods,” Dunn said. “Most of Vermont’s power supply is [procured through] long-term contracts, so we’re not as exposed to the price volatility the rest of New England sees.”

Michael Dworkin

Michael Dworkin. Photo courtesy of Vermont Law School.

New England utilities took a $2 billion hit during a particularly cold winter in 2014, and consumers were hit with a 30 percent to 40 percent electricity price increase soon after, Dunn said. “We don’t see that in Vermont,” he said.

In recent years, Vermont’s relatively stable electricity prices has allowed utilities to sell excess power to electrical grids in neighboring states, Dunn said.

Other states in the region have more merchant power producers. In Vermont, where utilities operate as regulated monopolies, the state imposes pricing restrictions upon utilities that are meant primarily to benefit ratepayers, and that include long-term contractual requirements on wholesale supply, he said.

A consequence of that arrangement, he said, is the likelihood that electricity costs in Vermont won’t dramatically increase this winter even in the event of an extended cold snap, a scenario to which other New England states are presently susceptible.

The dynamic state of the power supply in New England and Vermont, as the region attempts to reduce carbon emissions, was a recurring theme at the expo Thursday.

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“It’s like trying to rebuild an airplane, in flight,” said Michael Dworkin, a former Public Service Board chairman and the founder of Vermont Law School’s Institute for Energy and the Environment.

Energy attorneys cautioned attendees at the expo that Vermont’s new energy policies — many of them adopted in this year’s legislative session in response to outspoken opponents of in-state wind and solar energy generators — could lengthen that transition period.

But the transition should be just that, transitory, Dunn said. Large projects are planned for transmission of natural gas, but also to carry electricity from other regions and from Canada, he said.

Wind power, especially from big offshore projects, is anticipated to supply cheap renewable power soon as well, Dunn said, and energy-efficiency programs throughout New England are affecting the grid in much the same way as the addition of several thousands of megawatts of new generation. Anticipated new storage technologies are also likely to allow more electricity to flow from existing power plants, which would drive costs down as well, he said.

Until then, industry executives and policymakers will grapple with the problem of providing enough pipeline capacity to serve natural gas generators, even during peak periods.

“ISO is very correctly raising this as a concern,” Dunn said, “and for the next couple years it is a problem.

“We would like more capacity, but it’s a tough call to back something that lasts a long time when, from a reliability perspective, you’re only going to need it for the next three to five years,” Dunn said.

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Mike Polhamus

About Mike

Mike Polhamus wrote about energy and the environment for VTDigger. He formerly covered Teton County and the state of Wyoming for the Jackson Hole News & Guide, in Jackson, Wyoming. Polhamus studied at Southwestern Oregon Community College, University of Oxford and Sarah Lawrence College. His research has been commissioned on a variety of topics such as malnutrition and HIV, economic development, and Plato’s Phaedo. Polhamus hails originally from the state of Oregon. He now lives in Montreal.

Email: [email protected]

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