Attorney General Maura Healey released a white paper on Monday that calls for the creation of a New England task force to explore expanded use of carbon pricing in electricity generation to achieve region-wide greenhouse gas emission reductions.
The white paper’s recommendation is drawing attention because it mirrors what the region’s power grid operator has been saying for years. Healey in the past has been critical of the grid operator, ISO New England, for failing to design a wholesale market system that embraces renewables and moves the region away from reliance on fossil fuels in the production of electricity.
Now, it appears, the attorney general and ISO New England are more in sync.
The wholesale electricity market consists of two major sub-markets. One is a day-ahead energy market, which sets the price for electricity delivered to the power grid the next day. The other is a forward capacity market, which sets prices for what are essentially options to purchase electricity three years out. In both markets, ISO New England estimates how much power is needed and then hosts auctions to fill that need. Between the two markets, generators are expected to recover the cost of constructing and operating their facilities.
Over the last 15 years, the wholesale power markets worked relatively well. Generating plants powered by relatively cheap natural gas crowded out plants fueled by coal and oil. This transformation kept prices in check and reduced greenhouse gas emissions, and all the risks associated with this market change were borne by the power generators.
The guiding principle of the wholesale market is to provide reliable electricity at the least possible cost. But that emphasis on keeping costs low became a problem as state capitols across the region tried to come to grips with climate change, setting ambitious goals for greenhouse gas emission reductions. States needed large amounts of clean, renewable power, but offshore wind and hydro-electric projects have had difficulty breaking into the wholesale electricity markets because they were either too expensive or had huge up-front costs that couldn’t be recouped in the market.
So states like Massachusetts began cutting their own deals with renewable energy suppliers, offering financial incentives to solar developers and 20-year power purchase contracts to hydro-electric and offshore wind developers. These deals, negotiated outside of the wholesale electricity markets, created problems for ISO New England – how do you create a level playing field in a market where power generators are trying to recover their costs while competing against clean energy suppliers with 20-year power purchase agreements that cover most of their costs.
Healey in December launched a campaign to pressure ISO New England to adopt new rules for governing the wholesale markets to promote greater use of clean energy. “Right now those rules give a leg up to older, dirtier energy sources and make it harder for new, cleaner sources to provide electricity,” said a video Healey released as part of her campaign.
Now a key recommendation of Healey’s white paper – support for exploring carbon pricing – matches up with what ISO New England has been saying for years. The white paper summarizes a symposium Healey hosted in October where stakeholders from across the region met to discuss how to incorporate more clean energy into the power grid. “There was nearly unanimous support for some form of regional carbon pricing that is priced to help create incentives for compliance with the region’s clean energy goals,” the white paper said.
Just last week, Gordon van Welie, the president of ISO New England, said in a briefing with reporters that the best way to incorporate clean energy into the wholesale markets would be by putting a “realistic price on carbon emissions.”
“It will favor the operation of resources that reduce carbon emissions, and drive the clean energy transition desired by the states,” van Welie said. “At the same time, it would improve the overall efficacy of the existing market structure. Carbon pricing has the potential to be a solution that is relatively seamless in implementation, yet effective in helping states meet their renewable energy and carbon reduction goals. To date, there has not been a regional consensus on this approach.”
Healey’s white paper also makes several other recommendations, including a call for the development of electricity rates that better signal the actual price of electricity. Currently, customers pay the same price for electricity no matter when they use it. By charging customers more when demand for electricity is high, the theory is that customers will purchase electricity (run appliances etc.) when demand and prices are low, thus reducing overall demand at peak-demand periods.
Healey’s October symposium and her campaign targeting ISO New England in December were both funded by the Barr Foundation.