By Arne Hessenbruch
The Climate Action Business Association (CABA) participates wherever it can have an influence. What that means is perhaps an open question. It certainly includes the Massachusetts State House and the Department of Public Utilities (DPU). It also includes ISO-NE.
You might well wonder what ISO-NE is. The Independent System Operator of New England (ISO-NE) is not well known in the general public, primarily because its activities are related to the operation of the energy system in New England. Most people simply do not have the bandwidth to understand the complex issues involved.
And yet, important decisions are made here with regard to the transition to the 21st-century energy system. One set of such decisions relates to so-called future capacity market. Essentially, power is purchased here for the future. Renewable power competes with fossil fuels, hydro, and nuclear. Trades in this market contribute directly to our future energy mix.
Let us take a bird’s-eye view of the matter and leave out gas for the purpose of clarity. The 20th-century electricity system may be characterized briefly thus: power was transmitted and distributed in grids covering very large areas. Our grid was the Eastern Interconnect, covering the Eastern US minus Texas plus parts of Canada. This made for a problem involving pretty much electrical engineering only: you had to match supply and demand at every moment in time, turning up and down the production at power plants just as consumers’ demand fluctuated. And because demand grew every year along with the economy, utilities built more and more power plants. Utilities had a monopoly, and in return were regulated – which essentially meant that each state had a Department of Public Utilities that utilities had to ask permission from to set prices (called rates).
The 21st-century electricity system is of course still in the making and as such we don’t know what it will be like. We can guess from other similar changes, e.g. from landline telephones to cell phones. It will probably be much more complex, involve many more services, technologies, and markets. For example, we can imagine households producing and storing electricity, and trading directly with other households. Maybe the need for interconnection over thousands of miles will disappear as local and regional systems have enough storage to balance out any fluctuation in demand.
And right now, we are in the transition from one to the other. Some parts of the US (including New England) have wholesale markets. Individual households are sort of selling electricity to their utility (net metering) but not yet to each other. Renewables are making strides, and storage seems to be on its way. Planning for the future is done through state legislation, involving, say, renewable portfolio standards and carbon taxes – but also at places like ISO-NE. Many decisions are taken in such forums involving many participants and quite a lot of horsetrading. The focus is mostly on short-term gain and vested interests, and yet we are clearly moving in the direction of greater price visibility, more renewables, less waste, and integration of IT.
And one of the many small steps in this transition takes place around the future capacity market at the ISO-NE. The entry of renewables into the energy market is impacting also the capacity market. One of the ISO’s responsibilities is to design this market, that is to decide which prices should be paid for new power supply in order to have enough in the future to avoid blackouts but not so much that ratepayers pay for idle infrastructure. A difficult balance.
And here is an example of important decisions, alluded to at the beginning, taking place at ISO-NE. The penetration of renewables has caused industry participants to worry that “baseload resources”, meaning mostly fossil fuel power plants, have to be retired. These industry participants argue that markets need to be redesigned to allow for better financial incentives for baseload resources. Such an incentive could be a baseload tranche in capacity markets, meaning guaranteed market share for fossil fuels. Such suggestions are made in the name of reliability, but of course the vested interest is blatant.
The ISO-NE rejects the suggestion of such changes to the market design, and it is having the debate with New England Power Pool (NEPOOL) members, which include utilities, independent power providers, states, and large consumers and trade associations. The discussion is thus hardly taking place behind closed doors, but there is still a disconnect between the many people who care about the transition to a new energy system, and the public involvement in decisions at ISO-NE.
That is why it attracts CABA’s interest.