By William Opalka
NEW YORK — Whether the view is from PJM, which sits atop the Utica and Marcellus shale gas formations, or ISO-NE, at the “end of the pipeline,” the so-called “dash to gas” shows no sign of abating, speakers said Friday at the Energy Bar Association Northeast Chapter’s 2016 Annual Meeting.
“There’s a fairly high degree of confidence in the market that gas prices will be consistently low for a fairly long time,” said Vince Duane, senior vice president and general counsel at PJM. Of 36,000 MW of PJM generation that has retired in the last two decades, about 30,000 MW of the units replacing them are natural gas, he said.
Duane said that while the energy industry has “done a very poor job of forecasting prices and deploying capital” in the past, “the markets are [now] giving such an overwhelming signal” to choose gas.
In response to calls by FirstEnergy, American Electric Power and Exelon for subsidies to keep coal and nuclear plants operating, Duane co-authored a recent PJM study that counseled against such interventions. (See PJM Study Defends Markets, Warns State Policies can Harm Competition.)
“I do take issue with the idea that the entire nuclear fleet is at risk across the board. There’s always been well-run nukes … and the well-located ones are doing well,” he said, calling the predicted demise “hyperbole.”
Duane said markets have responded to environmental regulations in unexpected ways. EPA’s Mercury and Air Toxics Standards rule “is kind of a national experiment in that it’s imposing costs on every coal plant, whether it’s in an organized market or a regulated market,” Duane said.
“I thought I was going to write [that] the unregulated markets were ruthlessly efficient and regulated markets [were] holding onto that invested capital longer. We cut it every which way: the age of the resource; the size of the resource; the heat rate efficiency. And every time, we came up with no statistical difference … as both are doing a comparable job of pushing out the inefficient coal resources.”
Even where gas supplies are distant, market signals still point toward that fuel source.
“We are having more gas units come in through our capacity auctions, but we haven’t really had any gas infrastructure built,” said Kevin Flynn, senior regulatory counsel at ISO-NE.
Natural gas provides about half the energy in New England now, up from about 15% in 2000.
And as policymakers mandate more renewable energy resources, their integration requires more quick-start resources, usually natural gas, to maintain system balance, he added.
Because inadequate gas supplies exist during winter cold snaps, ISO-NE added its Pay-for-Performance program to incentivize generators when they’re needed most. It starts in 2018.
More than 3,000 MW of gas-fired generation has cleared in the last two Forward Capacity Auctions. “What we found in FCA 10 is that all gas resources that cleared are dual-fuel, as that’s the way the market is responding to Pay-for-Performance,” Flynn said. (See FERC Accepts ISO-NE Auction Results.)
The region has lost most of its coal fleet, and much of its nuclear generation is at risk. Vermont Yankee closed at the end of 2014, and Pilgrim in Massachusetts will leave the market in 2019.
Two nuclear units in New York are at risk, as the James A. FitzPatrick plant is set to close in the spring, and the R.E. Ginna plant could follow at the end of its reliability support services agreement, also early next year.
From 2010 to 2016, 11,665 MW of generation was built to replace aging or retiring units, representing about a quarter of the state’s total capacity of 39,000 MW, NYISO Assistant General Counsel Carl Patka said.
“We’re seeing a greater amount of deactivation notices, especially in western New York. Not a great surprise to see some of the older coal units” retiring, he said.
The retirements will make it a challenge for NYISO, which has a reserve margin of 20%, to maintain its reliability.
“Longer term, that’s something to keep an eye on,” he said. (See NYISO: FitzPatrick Closure will not Harm Reliability.)