Published on December 16, 2014
By John Davis
|Shell Oil Company (Photo credit: Wikipedia)|
Posted: 19 Dec 2014 07:27 AM PST
The ISO's on-going effort to integrate renewable energy into the New England power grid is not only on track but is accelerating. ISO-New England is the FERC-licensed entity that runs the New England power grid.
Specifically, two distinct but related changes are under way right now. First, on December 3, the ISO – for the first time in history – introduced negative price offers into New England's wholesale electricity markets. You can read about what that means, and why it is so important for renewable energy, in my previous blog post, here. The second change is that the ISO is on a trajectory to make variable output renewable sources (like wind and solar) fully dispatchable in New England's real time wholesale electricity market. You can read about what this means here.
One more piece of information – about the ISO's tariff – is crucial to understanding how these two related phenomena are going to radically change New England wholesale electricity markets for the better. The ISO's tariff is the document that sets out – in exquisite detail – the rules and procedures that govern New England's electricity markets. The tariff itself runs to 395 pages, and that is without Appendices A through K that add hundreds more pages.
Here is the crucial point: Under the ISO's tariff, only generation resources that are fully dispatchable get to set the clearing price for electricity. That clearing price, which can be different for every hour of the day, is the price that every generator on the system receives for its electricity output during the relevant hour. Now that renewables are being made fully dispatchable, renewable resources (like wind) will, for the first time in New England history, be able to set the clearing price for electricity. And that is happening at the same time as the ISO is introducing negative pricing!
Because I have the honor of representing CLF on several ISO committees, I have had a close-up view of this process actually working; it is really exciting. At an ISO meeting earlier this month, we went through a line-by-line and word-by-word review of the actual changes in the ISO's tariff that will make wind and run-of-river hydro power fully dispatchable. ISO will decide on the final tariff language in January, and plans to file the tariff changes with FERC in February. Wind and hydro should be be fully dispatchable in the New England electricity market in late 2015; and the ISO plans to make other renewables, like solar, fully dispatchable by 2018.
And, as I said above, negative prices became possible on December 3. In fact just over a week later, on Thursday, December 11, the wholesale price of electricity in New England dropped to minus $151.73 during one hour of the ISO's "Operating Day." Today (December 19) we had a clearing price of zero for an hour this morning, and then the clearing price dropped to minus-$47.67. Negative wholesale electricity prices in New England are not merely a theoretical possibility; they have been happening this month.
Needless to say, owners of conventional, fossil-fueled generating plants are very unhappy about these changes. As I explained in my previous blogs, most clearing prices are set by fuel costs. Because renewable generators have no fuel costs (sunshine and wind is free), it is renewable generators that are most likely to make negative-price bids in electricity markets. But when renewable generators set the clearing price at below zero, that is the clearing price for that hour for all generators (including the fossil-fuel generators which do have fuel costs)!
The old pricing paradigm for electricity changing – and it is renewable energy that is forcing the change. Fossil fuel (and nuclear) generators are not happy about it, because clearing prices below zero will undermine (and may eventually destroy) their entire business model. To its credit, the ISO is moving ahead with the changes, despite the manifest unhappiness of the fossil-fuel industry.
It is very, very cool to see intermittent renewables being made fully dispatchable, able to set prices, and getting integrated like this into the region's wholesale energy markets. In the past, environmentalists frequently heard the argument that, sure, renewables have some environmental benefits, but they are just too darned expensive. At some time in the foreseeable future, renewables are going to be setting (very low) prices in the wholesale electricity markets, and suddenly everyone will perceive them differently. In the future, we may see renewable energy being extolled for its low prices and direct benefits to ratepayers.