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Light or Heat
- 1. Light or Heat
ISO New England Generation Mix
January 2014
Copyright © 2014 by ScottMadden, Inc. All rights reserved.
- 2. ISO New England Is An Interesting Place
ISO New England has made a decision to shift its generation
portfolio strongly toward more renewable generation sources
This decision puts new expectations on simple and combinedcycle generation and the natural gas pipelines that serve those
plants
And it is not an easy market to serve, given the volatility of
generation requirements
Projected Retirements and Additions in
ISO NE
1,500
Oil
1,250
Nuclear
1,000
Gas
750
500
Coal
250
Solar
0
Monthly Load Standard Deviation as a
% of Load
25%
-250
-500
Retirements
are
comprised
entirely of
capacity
fired by
these four
fuels
2013 2013 2014 2014 2015 2015
Ret's Adds Ret's Adds Ret's Adds
Wind
Hydro
-750
New capacity is overwhelmingly
renewable, comprised of intermittent
wind and solar capacity
20%
15%
ISO-NE
PJM
10%
NY ISO
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
5%
40,000
Historic and Future Generation Mix
(MWs)
35,000
Other
30,000
Renewable
Gas-fired
generation
supplies
about half of
the MWhs
consumed in
ISO-NE
25,000
So, how are they keeping up so far? Let’s look at the natural
gas generation portfolio first
Oil
20,000
15,000
10,000
Gas
5,000
Coal
Nuclear
-
2010
Sources: Ventyx Energy Velocity; SNL; Energy; ISO-NE; ScottMadden analysis
1
Copyright © 2014 by ScottMadden, Inc. All rights reserved.
Column1
2015
- 3. Combined Cycles Are Running Less?
Monthly Combined-Cycle Capacity Factors
Combined Cycle Capacity Factors Have Decreased
We expected to find that capacity factors had increased in ISO
New England, but that is just not the case
The peak combined-cycle capacity factors experienced in
1998-99 occurred when gas prices nationally were at
record lows
Higher gas prices since have correlated with lower
capacity factors in late 2012/early 2014
Renewable generation has not exactly displaced combinedcycle generation, since renewables were 11% of the supply
curve in 2003 and about 12% in 2013
Overall reduction in load is part of the explanation. Put simply,
the slowdown in economic growth means less generation is
needed
With reserve margins of 20% in 2013 and low load
growth, it will take years for the excess capacity to be
absorbed through load growth and plant retirements
So far, gas-fired generation appears able to keep up with load
and renewable support requirements, but does that winter price
spike in natural gas prices in the Northeast point to trouble?
80%
70%
60%
50%
'98-'99
40%
'03-'04
'12-'13
30%
20%
Current Generation by Fuel (MWHs)
Renew,
2,788 , 7%
Coal,
2,427 , 6%
Water,
3,572 ,
10%
Gas,
18,505 ,
49%
Nuclear,
5,005 ,
13%
Petro,
5,578 ,
15%
Sources: Ventyx Energy Velocity; ScottMadden analysis
2
Copyright © 2014 by ScottMadden, Inc. All rights reserved.
Other, 35 ,
0%
- 4. Gas Pipeline Capacity Stresses ISO New England in the Winter
Gas Consumption Patterns
Pipeline Construction Continues
Gas for heating is typically purchased with firm transportation
to assure delivery in critical winter months
The industry added 245 miles and 3.2 Bcf/d of new pipeline
capacity to the Northeast grid system in 2012, representing
two-thirds of total capacity additions in the nation, and this was
the second highest level of regional capacity additions since
1997
Natural gas-fired generation typically relies on excess pipeline
capacity for its supplies
In the winter months, heating and electricity compete for
scarce gas transportation resources, creating a demand
“double peak”
ISO New England uses coal and oil-fired generation to
supplement gas fired, but these assets are being retired in
favor of renewables, ultimately requiring gas-fired generation to
run more
ISO New England has yet to benefit year-round from the
historically low gas prices
In fact, in the days following a blizzard in February 2013,
natural gas in the region was triple the price being charged in
other parts of the country, as high gas demand for electricity
coincided with a spike in gas demand for space heating
Pipeline capacity restrictions are a year-round phenomenon,
for ISO New England. Summer pipeline maintenance and
winter heating needs both conflict with electricity generation
ISO New England has responded by changing its day-ahead
market timing, creating a winter reliability program and refining
the reserve market to maximize pipeline capacity and bolster
coal and oil generation alternatives
3
Sources:
$18
$16
Avg Northeast
Henry Hub
$14
$12
$10
$8
High Natural Gas Prices in ISO New England
Copyright © 2014 by ScottMadden, Inc. All rights reserved.
Daily Natural Gas Spot Prices – NE vs. Henry
Hub
$6
$4
$2
“On a peak day, when Algonquin is hitting $30 plus [per MMBtu], [New England]
is not only the most expensive market in the United States, it is the most
expensive market in the world, and it's very close to some of the least expensive
supplies in the world. So there is an obvious solution to that, and that is the
infrastructure needs to be expanded back to where the supply is plentiful.”
Greg Crisp, Spectra Energy's director of northeast business development
Ventyx Energy Velocity; EIA; SNL Energy; ScottMadden analysis; “Natural gas Now
Serves Two Masters: Electricity and Heat” Energy Central, August 18, 2013
- 5. The Future Does Not Get Easier in New England
Gas-fired generation will be required to run more often to integrate renewables, which is even riskier in the winter months when
electricity generation will compete with heating needs in a market with fewer and fewer coal, nuclear, and oil assets.
ISO New England Supply Curve – 2020 (30% Wind*)
When unavailable, 6,000 MWs of renewable generation (e.g., solar,
wind, etc.) will pull the generation stack to the left, leaving only
gas-fired generation to pick up the load
As ISO New England’s fuel mix becomes less diverse, more gas pipeline capacity is
needed to serve the “double peak” in winter months
*Note: Assumes a 30% capacity factor for wind in the region
Sources: Ventyx Energy Velocity; ScottMadden analysis
4
Copyright © 2014 by ScottMadden, Inc. All rights reserved.
- 6. Contact Us
Todd Williams
Steve Sanders
Partner
Director
ScottMadden, Inc.
3495 Piedmont Road
Building 10, Suite 805
Atlanta, GA 30305
Insert email@scottmadden.com
O: 404-814-0020 M: 678-644-9665
ScottMadden, Inc.
3495 Piedmont Road
Building 10, Suite 805
Atlanta, GA 30305
Insert email@scottmadden.com
O: 404-814-0020 M: 770-490-8684
Quentin Watkins
Managing Associate
ScottMadden, Inc.
3495 Piedmont Road
Building 10, Suite 805
Atlanta, GA 30305
Insert email@scottmadden.com
O: 404-814-0020 M: 404-863-8410
5
Copyright © 2014 by ScottMadden, Inc. All rights reserved.