Heating homes is given priority.
It’s a decision that makes sense given the number of other fuels available to generate electricity — coal, oil, sun, wind, nuclear, are just a few. But it’s also a decision that’s costing New England more and more each winter, as using natural gas for home heating grows in popularity.
The result is a traffic jam on the natural gas pipelines that puts electric generation, and your ability to turn on the lights, at risk throughout the region.
In the past five years, natural gas has become an increasingly popular fuel for both heat and electricity generation. That’s thanks to a relatively new practice called hydraulic fracturing — or fracking.
With fracking, high-pressured water shatters shale and provides drillers access to natural gas that was previously unreachable.
The now-widespread practice makes natural gas one of the cheapest fuels for generating electricity.
Birud Jhaveri, director of energy markets at the Department of Energy Resources, explains that before fracking was developed, prices for oil and gas “trended equally” although gas was cheaper overall.
“If oil went up, natural gas was related to that and it went up too,” he said.
The two fossil fuels’ fates were so tied that a reliable way to predict gas prices for electricity generation was simply to look at the oil prices, as both were imported from other countries, Jhaveri said.
After 2010, though, Jhaveri said, the prices “decoupled,” thanks to fracking.
“Oil prices continued to rise and gas prices just plummeted,” he said.
ISO-New England, which runs the region’s wholesale energy market, is responsible for making sure supply keeps up with demand in the cheapest possible way. So every day the organization predicts how much energy is needed, sifts through offers submitted by generators, and calls on the lowest bids first.
When prices for natural gas dropped, generators using the fuel could bid into the market cheaper, meaning natural gas was used more and more.
In 2000, only 15 percent of New England’s energy was produced using natural gas, while 18 percent was produced with coal and 22 percent was produced with oil, according to ISO-NE. In 2012 a whopping 52 percent of New England’s energy was produced using natural gas, while 3 percent was produced with coal and less than 1 percent was produced with oil.
Such a shift is often heralded as good news not just from the financial perspective, but also because natural gas—while still a fossil fuel — emits about half the carbon dioxide as coal, making it better for the environment.
Wholesale prices for electricity have also dropped. For example, in October 2012, wholesale electricity prices were at $34.65 per megawatt hour, an average of 12.6 percent lower than they had been in October 2011, largely thanks to fracking, according to ISO-NE.
Natural gas’ low prices have not only shifted where our electricity comes from, but also where our heat comes from.
For NStar customers, the price for heating with natural gas is $1.63 per gallon, compared to an average of about $4 per gallon of oil, according to spokesman Michael Durand.
The result is that since 2011 the utility has seen more than 2,000 customers per year convert their home heating systems from oil to natural gas; 2012 was the most active year, with 2,500 customers converting. By contrast, before 2011 an average of just 700 customers switched to natural gas per year.
But what’s cheaper during most of the year comes at a price during the winter, especially this year when cold spells have lasted weeks.
Though electricity demand peaks in the summer months thanks to air conditioning units, the system has become strained the past two winters because of the dual demand for natural gas.
“It’s a very significant issue,” Tom Kiley, CEO of the Northeast Gas Association. “There is an obligation to serve home-heating customers but on the coldest days we simply do not have the pipeline capacity to do that and send it to generators.”
While during the rest of the year natural gas is being used to cover roughly half of New England’s energy demand, in the winter more expensive fossil fuels cover the difference.
So on July 19, 2013 — the summer day with the highest demand — natural gas was being used to cover 52 percent of electricity generation needs. On Dec. 17, 2013 — the peak demand day for this winter — natural gas was covering only 38 percent of demand.
Such a shift in what fuels are used can cause problems in extreme weather changes.
At the end of January 2013, for example, temperatures fell to the single digits. Suddenly, demands on the natural gas pipelines for heating meant the price of gas rose above that of oil for electricity generation.
That meant ISO-NE was suddenly calling on oil and coal plants that were not expecting it and that had not stockpiled enough fuel.
“The natural gas prices went up and there were pipeline constraints, and we ran into issues with generators not having the fuel they needed to run when we needed them running,” said ISO-NE spokeswoman Lacey Ryan. “We were relying heavily on those plants and saw several generators go low on their oil inventory, others ran out.”
To prepare for this year’s winter, ISO-NE began a “winter reliability program” to check on how much fuel generators had before they were called on to provide power.
Ryan said the program has worked so far without any major problems.
Still, this winter NStar customers are seeing increases in their electric bills. Utilities chose their electricity generators based on a competitive bidding process that takes place twice per year. Though NStar’s Durand said he could not disclose exactly how generators determine with their bids, he did say that “If generators are paying more for gas they use to produce electricity, they are charging more for electricity.”
In January, that meant that the average residential NStar customer saw his or her bill increase by 10 percent— about $9.14 per month for customers using 500 kilowatt hours of energy.
Energy officials are also getting worried about what will happen come winter 2017, when nine of New England’s 32 gigawatts of electricity generation come offline.
Those plants, representing more than 25 percent of the region’s generating capacity, include coal plants in Salem and Somerset, as well as a nuclear plant in Vermont.
ISO-NE is already estimating that the system will not be able to meet peak-demand in 2017 and will in fact fall short by 155 megawatts.
As far as megawatts go, that’s not a lot. Brayton Point Coal Plant in Somerset, for example has a 1,150 megawatt capacity. But the capacity shortfall will cost New England utilities and retail suppliers almost $2 billion more in capacity payments than in 2013, according to ISO-NE. This all trickles down to the ratepayer, too.
In 2017, the capacity problem is estimated to collectively cost Massachusetts ratepayers nearly $1 billion extra unless a solution is found, according to the state’s Department of Energy Resources.
To help stem the tide, Massachusetts is hoping to keep the Salem plant generating energy in the future — by converting it to being powered not by coal but by natural gas. A similar idea has come up in talks about the future of Somerset’s Brayton Point Coal Plant, but nothing has been decided, Massachusetts Assistant Secretary for Energy Steven Clarke said.
Converting the plants to natural gas might help with energy generation in the summer, but in the winter could only exacerbate the current pipeline traffic jam.
In January, the six New England governors sent a letter to ISO-NE with a plan to diversify the region’s energy infrastructure.
The plan has two parts, the first of which is to create more pipeline for natural gas with public funding.
“We want more people to switch to natural gas, and we want to be using natural gas for electricity,” Clarke said. “We want to gain access to affordable, cleaner energy. That’s where the pipeline comes in.”
The pipeline, which will expand capacity by six billion cubic feet, is just part of the picture.
The states also intend to invest in renewable energy — including offshore wind projects like CapeWind — to help ease dependence on natural gas as a whole.
“This whole initiative is a package deal,” Clarke said. “From the Massachusetts perspective, it is not possible to proceed with the gas expansion and not do the clean energy part.”
But environmentalists say they are concerned that the plan to build more natural gas pipeline might actually get in the way of plans to develop alternative energy.
Curtis Fisher, Northeast regional director for the National Wildlife Federation, said he is worried that the low price of natural gas now is lulling the region into making large investments that will commit New England to the fuel no matter how high prices go.
“If you think about our fuel infrastructure now, the coal and oil plants we are still using were built 50 years ago,” he said. “We don’t know what natural gas prices will look like 50 years from now, but given where they are now, they will most likely only go up.”
Prices could rise, he said, if the shale reserves either dry up or begin being exported to an international market.
In contrast, Fisher noted, the cost of renewable energy development is only up front because the fuel generating electricity, like wind or solar, is free and cannot be depleted.
CapeWind Spokesman Mark Rodgers said that’s one aspect of offshore wind that many overlook when they think about the high cost of deploying an offshore wind farm.
He said CapeWind has done studies showing that offshore wind speeds peak with electricity demand, making the project even more important.
“In the summer you have the sea breeze that begins in the afternoon, when people are turning on their air conditioners, and in the winter you always have the wind chill effect,” he said.
In fact, after a particularly bad three-day cold snap in 2004 that strained electric generators, the Massachusetts Department of Energy Resources conducted a study of how CapeWind would have helped the system.
Using meteorological data from Nantucket Sound, the study found that Cape Wind could have supplied 25,596 megawatt hours of energy during those three days. According to the study, had that energy come from CapeWind and not natural gas at the time, 184.25 million standard cubic feet of gas would have been saved — enough to heat 1,600 homes for a year.
“Offshore wind would lessen some of the pressure on the pipeline that we have and would make a more secure electric grid,” Rodgers said.
“Offshore wind can really provide utility-scale clean power to the East Coast at times when it is needed more.”
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