A new report on the 2012 power markets in the ISO New England region points to the fact that demand for natural gas to fire power plants is outstripping the pipeline capacity to get that fuel into the region.
The report, said ISO New England in a May 15 statement, did say that the $6.1bn wholesale electricity markets in New England operated efficiently and competitively in 2012. The report is from the ISO’s Internal Market Monitor (IMM).
Gas supply issues in New England have been heavily featured in a series of workshops that the Federal Energy Regulatory Commission has held in the past year about gas/power grid reliability issues. A meeting is planned May 16 at FERC headquarters in Washington, D.C., with commissioners present, to look at the current state of this evaluation process.
The ISO New England monitor’s 2012 Annual Markets Report (AMR12) shows that wholesale electricity prices fell as a result of lower natural gas prices and slightly lower demand for electricity in the six-state region. The report concludes that lower prices in 2012 were the outcome of efficient and competitive wholesale electricity markets.
“The trend of the last few years accelerated in 2012, as falling natural gas prices drove down the price of electric energy in New England. Natural-gas-fired power plants generated 52% of the electricity produced in New England, and set the energy price in most hours,” said the ISO’s David LaPlante, vice president of market monitoring. “There is a clear linkage between the cost of fuel and the price of electricity: The average price of natural gas fell nearly 20% in 2012, and the price of electric energy fell 23%.”
AMR12 reported on current issues affecting the markets, including the challenges posed by the region’s dependence on natural gas for generation. The report notes that the low price of natural gas has caused gas demand to grow, outpacing the capacity of pipelines bringing it into New England, and that there were periods in 2012 when natural gas-fired generators were unable to operate due to issues with fuel availability.
AMR12 outlines actions ISO New England is taking to address these reliability concerns, including adjusting the Day-Ahead Energy Market schedule to more closely match the gas industry’s timeline, to be implemented May 23 for the May 24 operating day.
The average price of natural gas, which produced 52% of the electricity generated in New England and set the clearing price in 81% of the hours in 2012, fell 19.5%, from $4.98/MMBtu in 2011 to $4.01/MMBtu last year.
The ISO relies on two independent market monitors, one internal and one external. They annually review and report on market results and offer insights into the markets’ efficiency and competitiveness as well as market design and needed operation enhancements. The IMM reports directly to ISO New England’s Board of Directors, giving the market monitoring unit the independence needed to objectively perform its functions. The IMM submits the annual report simultaneously to the ISO and the FERC, which is charged with ensuring that markets within its jurisdiction are free of design flaws and inappropriate market behavior.
IMM report recommends a series of change in gas-related market procedures
The report itself said about the gas supply issues: “The region’s use of natural gas for about half its electric energy has revealed both operational difficulties in coordinating the purchase and delivery of the fuel that generators need each day and the potentially insufficient infrastructure to supply all the natural gas the region’s residential, commercial, industrial, and electric sectors demand during peak periods. The ISO has several proposals in differing stages of implementation to address both the operational and adequacy issues. To address the operational problems, the ISO is proposing, among other things, to (1) change the timeline for the day-ahead market, (2) increase the amount of 30-minute reserve purchased through the locational Forward Reserve Market (FRM) and simultaneously price this increased reserve in real-time operations, and (3) implement hourly offers and intraday reoffers. To address the adequacy-related issues, the ISO is proposing to change the definition of shortage events in the Forward Capacity Market and implement a new performance incentive framework for the FCM.”
The IMM said it believes that with the ISO’s proposed changes to the day-ahead market timeline, the increased purchase of operating reserves, and the implementation of intraday offers, resources will less often fail to deliver energy because of a lack of fuel. The primary reason for this improvement is that the resources needed based on the Reserve Adequacy Assessment (RAA) will be notified earlier in the day so they will have more time to procure gas.
However, these changes do not directly address the problems with gas resources’ performance between the close of the evening nomination cycle and the start of the next gas day. To address these problems, the IMM makes these recommendations:
- Continue to support the recommendation made in the 2011 Annual Markets Report (AMR11) that the ISO implement software and rule changes that would allow resources to offer hourly and update incremental supply offers within the operating day to reflect changes in fuel costs during that day. Resource owners may be more willing to provide electric energy if they can accurately reflect their costs in real time. This change will allow sellers to reflect costs more indicative of actual fuel prices, improve energy market price signals, and permit a closer match between these prices and the cost of procuring fuel in real time, the report noted.
- Develop additional forward markets so that any resources committed by the ISO for reliability reasons has a financial obligation to provide energy. The IMM said it has observed that problems with resources failing to respond successfully to ISO commitment and dispatch instructions in real time because of a lack of fuel continued in 2012. This indicates that the energy revenues foregone by not procuring the fuel to operate do not provide sufficient incentives for these resources to procure fuel. Most of these instances occurred when the ISO dispatched resources to provide energy not sold in the day-ahead market, thus the resources had no financial obligation to provide the energy.
- Make the locational Forward Reserve Market product a “24×7” product rather than the current “5×16” product when the intraday reserves are implemented to provide incentives for locational FRM resources to make arrangements for fuel in the overnight hours.
- Increase the locational FRM penalties to assure the effectiveness of the intraday reserves.
- Have the ISO work with the natural-fired generators to improve how these generators report their availability during the hours after the close of the evening nomination cycle.