ISO New England Expects Sufficient, Reliable Power Generation for This Winter

On December 1^st, the unofficial start of the winter power season, ISO New England published a press release declaring sufficient electricity supply for the region this winter (2015/2016)[i]. As natural gas supply constraints have plagued the region for the past three winters, reliability operations will continue to see challenges but operational integrity of the grid should remain intact.

Contributing to the confidence of the transmission operator is the Winter Reliability Program which has been in place for the past two winters to help mitigate large gas and power price spikes in the market. The Winter Reliability Program incentivizes both oil- and natural gas-fired generators to carry fuel above and beyond what they would normally hold by partially compensating the participating generators for any unused fuel leftover at the end of February. The result is more price and dispatch flexibility for participating generators during times where natural gas supplies are limited due to increased residential and commercial heating demand.

Last winter, the program oil burn topped 2.7 million barrels, which came out right on top of the 2013/2014 program oil burn. Program LNG burn was not nearly as successful since there was no contracted LNG burned[ii] for the entire winter. However, the lack of fuel use can be attributed to the substantial spot LNG send-out from the Everett, Canaport, and Northeast Gateway import terminals.

Global LNG prices have remained suppressed due to continued low crude prices making the Algonquin Pipeline (New England’s primary natural gas price point) the most economically advantageous import location for LNG exporters around the world. Despite it not being officially part of the Winter Reliability Program, this LNG dynamic certainly contributed to mitigating natural gas and power price volatility in New England last winter and many market participants[iii] are expecting the same import supply availability this winter.

Although the Winter Reliability Program should certainly help out with power supply and prices, it does not mask the fact that ISO New England has identified over 4,000 MW of gas-fired generation that is at risk for not receiving sufficient fuel on any given day due to physical pipeline constraintsi. This accounts for over 13.5% of total resources accounted for in energy to the grid. Although this total obligation totals 31,058 MW, ISO-NE forecasts the winter peak demand for a “normal” winter temperature of seven degrees Fahrenheit to be 21,077 MW with the expectation for extreme winter temperatures of two degrees Fahrenheit to boost that demand up by 3.1% to 21,737 MW.

The all-time New England winter peak came on January 15^th, 2004 where 22,818 MW was consumed.  With the 4,220 MW of gas-generation at risk of a fuel cutoff, 26,838 MW of generation are still financially obligated to offer power to the grid, which would provide sufficient supply this winter and even a 4,020 MW surplus if the all-time winter peak were to be reached again.

To help you better manage your power and natural gas supply this winter and beyond, Constellation offers a variety of products and services that can help you mitigate risk and protect you from market volatility. Contact us today to learn more.

Resources:

[i] ISO New England Newswire, “Winter 2015/2016: Sufficient Power Supplies Expected to be Available”

http://constellationm.wpengine.com/wp-content/uploads/2015/12/20151201_winter_outlook_release_final-1.pdf

[ii] ISO New England, “ISO New England Update, Consumer Liaison Group Meeting” 13 March 2015

[iii] Genscape, “New England Power Outlook December 2015”

Newsham, Jack, “Could extra LNG supplies help restrain winter gas prices?” The Boston Globe, 15 October 2015 https://www.bostonglobe.com/business/2015/10/25/more-lng-could-flow-boston-this-winter/ILzQmefJjSI08u6CcP1M0K/story.html