America’s first major offshore wind project is caught in a crosswind.
The Federal Regulatory Energy Commission declined this week to rule on a waiver that would have eased the wind developer’s entry into New England’s electricity market.
The decision, or lack thereof, prompted an unusual round of public sniping among FERC commissioners on Twitter and highlights the simmering tensions in New England, where state climate ambitions are straining against the structure of the region’s wholesale electricity markets.
Some environmentalists and regulators said the incident illustrates the entrenched opposition to renewables from the regional grid operator, ISO New England, and federal regulators.
“Whether it’s intentional or not, ISO New England is running a system and maintaining a system that is designed for fossil fuel generators,” said David Ismay, an attorney at the Conservation Law Foundation. “To date, it has acted as if it sees renewables and other clean technologies as a threat to that system.”
Power plant owners and ISO New England have rebuffed those claims. They said the grid operator and FERC were merely focused on ensuring that New England’s electricity markets followed procedure and functioned properly.
Dan Dolan, president of the New England Power Generators Association, a trade association representing power plant owners, said the situation has been blown out of proportion.
“The basic issue is more procedural and timing in nature, rather than some sort of verdict of whether offshore wind is good, bad or indifferent,” Dolan said. “It appears to be turning into something much larger than that.”
The disagreement over Vineyard Wind’s waiver concerns a technicality in New England’s power markets. The company requested an exemption that would have allowed it to bypass a minimum offer price on subsidized energy resources that participate in the grid operator’s annual markets for reserve power.
FERC agreed to a fix proposed by ISO New England that would allow Vineyard Wind to qualify for the exemption in the coming years. The decision was part of a Jan. 29 ruling approving the grid operator’s wider plan for integrating renewables with state contracts into the region’s electricity system.
But the commission did not take up the waiver request in time for the wind developer to participate in this year’s Feb. 4 auction. On Monday, Vineyard Wind asked FERC to stay or rerun the auction, arguing it would otherwise suffer irreparable harm.
“This action will ensure full support for the emerging U.S. offshore wind industry at future Forward Capacity Auctions,” Scott Farmelant, a Vineyard Wind spokesman, said in a statement. “Vineyard Wind deeply appreciates the Trump Administration for its ongoing support of our project, and we remain on track to secure permits that will allow for the onset of construction in 2019 and the start of operations in 2021.”
The dynamic hints at several of the larger challenges facing New England. The region has struggled in recent years with balancing its climate goals against the structure of its wholesale electricity market, where power plant owners compete against each other to sell their electricity (Climatewire, May 2, 2017).
Massachusetts, Connecticut and Rhode Island, frustrated at the slow pace of renewable development, have taken steps to guarantee long-term contracts for wind and solar projects – as well as hydroelectric and nuclear plants. It’s part of the states’ wider push to decarbonize their economies.
Vineyard Wind represents the first wave of those contracts. The 800-megawatt development is the product of a 2016 Massachusetts law that requires the state’s utilities to acquire up to 1,600 MW of offshore wind. The company, a partnership of Avangrid Renewables and Copenhagen Investment Partners, last year beat out two other wind developers for the right to negotiate long-term contracts with Massachusetts utilities (Climatewire, Aug. 6, 2018).
But some plant owners have expressed fear that they could be pushed from the market in the face of increasing state renewable contracts.
The issue is particularly acute in ISO New England’s capacity market for electricity reserves. Every year, the grid operator holds an auction to make sure it has enough power to meet future energy needs. Companies with an accepted bid in this year’s auction, for instance, will receive payments in return for a guarantee to supply electricity to the grid in 2022 and 2023.
ISO New England has sought to accommodate the new state-contracted renewables while leaving the competitive market intact. It imposed a minimum offer price on subsidized resources on the theory that it prevents them from undercutting the market by submitting a bid below their operating cost.
And it devised a secondary market for reserve power, in which a state-contracted renewable resource can agree to buy out the contract of a retiring fossil resource. The idea: Consumers should not pay for a resource twice, once in a state contract and a second time in ISO New England’s capacity auction.
But it’s a fragile compromise. In many ways, the disagreement over Vineyard Wind’s waiver is best understood as a fight over money, said Ari Peskoe, who leads Harvard Law School’s Electricity Law Initiative. He pointed to a New England Power Generators Association filing with FERC this week, in which the power plant owners argued that Vineyard Wind’s participation in the auction would prompt total market revenues to fall by $270 million. For the wind developer, on the other hand, the capacity auction represents an additional revenue stream outside its state contract.
The FERC flap is unlikely to delay or derail Vineyard Wind, but it could affect the company’s bottom line, said Paul Hibbard, a principal at the Analysis Group in Boston and a former Massachusetts utility regulator.
“I don’t think what’s going on with the auction and at FERC is minor to this project,” Hibbard said. “If there are forgone auction revenues, it is meaningful to Vineyard Wind, Massachusetts ratepayers or both. It’s potentially a significant amount of money.”
It’s not clear exactly why FERC chose not to rule on the waiver. The death of Commissioner Kevin McIntyre has created a vacancy on the commission, leaving it equally divided, with two Republicans and two Democrats.
ISO New England did not oppose Vineyard Wind’s request. Neither did the New England Power Generators Association, though the group raised concerns about the waiver’s structure, saying the proposal represented a fundamental shift in how ISO New England treats exempted resources.
FERC commissioners nevertheless traded rejoinders on Twitter over the commission’s inaction.
Democratic Commissioners Cheryl LaFleur and Richard Glick expressed disappointment in a joint statement, saying FERC “has introduced significant uncertainty into this auction. All parties, including New England’s states, consumers, and auction participants, deserve better.”
But Neil Chatterjee, FERC’s Republican chairman, shot back: “I do not discuss the Commission’s internal deliberations with the public. Doing so would be highly inappropriate and might undermine the commission’s process.”
The Twitter exchange comes on the heels of FERC’s decision in December to grant ISO New England’s request to provide an above-market contract to a natural gas plant in Boston (Energywire, Dec. 5, 2018). The grid operator had argued that the plant faced shutting down and was essential to ensuring the viability of the region’s electric system.
In a partial dissent from ISO New England’s plan to integrate state-contracted renewables, Glick said the grid operator “has exhibited what can fairly be described as a preference for retaining traditional generation resources rather than exploring other approaches that might more effectively address the ISO’s fuel security concerns.”
But an ISO New England spokeswoman rejected that charge, saying the grid operator is technology-neutral and that it has worked closely with market participants to integrate renewables. In the case of the gas plant, the request for an above-market contract was made out of reliability concerns, Marcia Blomberg wrote in an email.
While ISO New England did not oppose Vineyard Wind’s waiver, it does object to the company’s request to rerun the auction.
Doing so would “adversely affect the competitiveness of the auction, allowing participants to use strategic information gathered during and after the original auction,” Blomberg said.
In many respects, the wind developer’s request represents a turning point, said the Conservation Law Foundation’s Ismay. For years, the conservation group has argued that ISO New England has discounted renewable resources to the benefit of fossil fuels.
But those arguments have often been disregarded at FERC, where climate considerations and emission reductions hold little sway, Ismay noted.
Vineyard Wind’s argument is different. It is acting like a traditional power plant operator seeking a financial opportunity, arguing that the ISO’s rules are costing it money. That is a question well within FERC’s wheelhouse, Ismay said.
“Starting now, real corporations have a real financial interest in bringing renewables online and making them economically feasible,” Ismay said. “Action like this is going to be what finally moves ISO New England and FERC.”
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