Healey takes on grid operator

ATTORNEY GENERAL MAURA HEALEY, backed by the Barr Foundation, is launching a campaign to convince the operator of the regional power grid to embrace renewables and move away from electricity produced using fossil fuels.

Healey on Thursday invited Massachusetts residents to watch an explainer video and sign a petition urging the region’s grid operator, ISO New England, to adopt new rules for governing the region’s wholesale electricity market that would promote greater use of clean energy.

“Right now those rules give a leg up to older, dirtier, energy sources and make it harder for new, cleaner sources to provide electricity,” the video says. “In New England, our current energy system is more expensive and more polluting than it should be.”

The pitch from Healey and the Barr Foundation grossly simplifies the way the region’s wholesale electricity market works, but it highlights a very real problem: the market and renewables are not meshing well.

It’s worth remembering how we got here. Thirty years ago the electricity market was vertically integrated. Utilities produced and distributed electricity subject to the guidance of regulators, who guaranteed the companies a rate of return. But a series of bad decisions, which sent rates soaring, prompted a move to deregulate the industry. Utilities sold off their power plants, and the new owners were forced to compete for business in the wholesale electricity market.

That market consists of two major sub-markets. One is a day-ahead energy market, which sets the price for electricity delivered to the power grid the next day. The other is a forward capacity market, which sets prices for what are essentially options to purchase electricity three years out. In both markets, ISO New England estimates how much power is needed and then hosts auctions to fill that need. Between the two markets, generators are expected to recover the cost of constructing and operating their facilities.

The market worked smoothly for a long time. Over the last 15 years, generating plants powered by relatively cheap natural gas have crowded out plants fueled by coal and oil. This transformation kept prices in check and reduced greenhouse gas emissions, and all the risks associated with this market change were borne by the power generators. For example, Brayton Point, a coal-fired power plant in Somerset, spent more than $1 billion on environment mitigation efforts before it finally shut down in June 2017. Ratepayers weren’t stuck with those costs.

The guiding principle of the wholesale market is to provide reliable electricity at the least possible cost. “That’s all this market does. It doesn’t incorporate an environmental objective,” said Gordon van Welie, the president of ISO New England, in an interview in November 2018.

But the market’s lack of an environmental objective became a problem as state capitols across the region tried to come to grips with climate change, setting ambitious goals for greenhouse gas emission reductions. States needed large amounts of clean, renewable power, but offshore wind and hydro-electric projects couldn’t break into ISO New England’s wholesale electricity market. The projects were either too expensive or had huge up-front costs that couldn’t be recouped in the market.

So states like Massachusetts began cutting their own deals with renewable energy suppliers, offering financial incentives to solar developers and 20-year power purchase contracts to hydro-electric and offshore wind developers. The challenge for ISO New England is how to blend these out-of-market deals into the existing market.

Anne George, vice president of external communications at ISO New England, said the best option would be for the New England states to put a price on carbon. Carbon pricing would rebalance the market, financially rewarding those generators who produce power with fewer emissions and doing away with the need for states to strike one-on-one deals with renewable energy developers.

But states so far have been unwilling to put a price on carbon, so ISO New England has had to come up with fairly convoluted schemes to shoehorn wind and hydro projects into the market. It’s a challenge because these projects already have 20-year contracts to cover their costs; is it fair for them to bid against projects that are trying to recover their expenses in the marketplace?

There is some momentum among stakeholders to figure out a better way, either by overhauling the entire market, changing the rules, or doing away with the market entirely and allowing states to once again pick and choose which energy projects they want ratepayers to finance.

“We need to have more say,” says the video released by Healey. “Tell the ISO you want rules to promote clean, affordable energy, healthy communities, and climate protection.”

George says ISO New England welcomes input and discussion.