Get the most out of offshore wind revolution
In a concerted effort to cost-effectively reduce greenhouse gas emissions and diversify the region’s energy portfolio to enable less reliance on natural gas, Connecticut and our neighboring states of Massachusetts and Rhode Island have procured a total of 1,500 megawatts of offshore wind projects. And here in Connecticut, as much as 2,000 more megawatts of wind energy could be up for procurement, if legislation championed by Governor Lamont and currently making its way through the legislature is approved this year.
This is indeed progress, and it could just be the start – in addition to Connecticut’s ambitious wind-power agenda, Massachusetts already has the authority to procure another 2,400 megawatts in the coming years. The costs of these offshore wind contracts have been lower than many predicted, leading to significant excitement about the resource’s ability to help transition New England to a clean energy future. Again, all of this is good news.
As currently designed, however, these contracts do not yet address one of the most important attributes that could contribute to a clean future: capacity.
Simply put, capacity is the ability to provide power at a particular point in time; it is what the grid operator relies on to meet the highest forecasted electricity demand. As an analogy, think of it as building a church with enough seats to fill the church on Easter Sunday, rather than on a typical Sunday – it’s all about meeting demands at the highest possible peak times. Throughout my over 30 years of experience in the industry, figuring out just how much capacity is needed has always been a challenge. Securing too much adds costs to customers, securing too little runs the risk of blackouts and disruptions.
Because the region functions as a competitive energy market, the regional grid operator, ISO-New England, runs an annual auction to procure the capacity needed to meet regional demand three years into the future at the lowest cost. When we in the industry designed the competitive market framework 20 years ago, it was in large part to get away from utility contracts subsidized by ratepayers, shifting risk to the investors. Because these projects would have a competitive advantage over non-subsidized resources, they would be kept out of the market under those rules and not counted towards the region’s capacity needs. Many of us on the consumer advocacy side of the debate supported figuring out a way to allow these resources to be counted within the competitive market framework, leading to recent changes in the rules.
If the resources do not clear in the initial auction, they can then participate in a second substitution auction where they can replace fossil plants willing to give up their slot in the capacity market in return for a payment. This construct enables a smooth transition to a cleaner energy future. The rules were changed specifically to accommodate the Massachusetts, Rhode Island, and Connecticut contracts into the market.
The opportunity door was open, yet the contracts arising from these procurements in Massachusetts and Rhode Island – and which could arise soon in Connecticut – did not and do not take advantage of the opportunity.
The reason? None of the contracts require the offshore wind developers to bid into the capacity market. While the developers likely have a financial incentive to bid into the market, there is no requirement that they do so. Consequently, the region may buy more capacity than it needs, and higher emitting resources will continue to operate. Which means the vision behind these purchases is not being fulfilled.
As these contracts undergo regulatory review and approval in Connecticut and neighboring states, they should be required to bid into the forward capacity market. All future solicitations undertaken by New England states should be clear that the selected developer will be expected to bid their project’s capacity into the capacity market. This stipulation will ensure that customers realize the full benefits of the projects they are enabling. Offshore wind facilities, when bidding into the capacity market, will be able to offset older plants.
Not only will this accelerate the regional transition to a clean grid, it will ensure that customers who are paying for the project will realize the economic benefits from not buying more capacity than is needed. The capacity value is there, and we should use it.
Cynthia Arcate is president and CEO of PowerOptions, a non-profit energy-buying consortium that provides cost savings to more than 400 nonprofits and municipalities in Connecticut, Massachusetts and Rhode Island.