Energy Whitepaper 2015 - The Massachusetts Business Roundtable

Transcription

Building the Backbone
of Energy Efficiency
New England’s Competitiveness, Innovation,
and Sustainability in the 21st Century
June 2, 2015
Federal Reserve Bank of Boston
executive summary
Perlmutter Institute for
Global Business Leadership
New England Economic Partnership: Building the Backbone of Energy Efficiency
AGENDA
11:45 a.m. Registration
12:15 p.m.New England Energy Challenges and Trends
Kevin Lindemer, Managing Director, IHS Global Insight/Cambridge Energy Research Associates
1:15 p.m. Luncheon
2:00 p.m.NEEP Forecast Managers: Growth, Energy Costs, Infrastructure Needs
— Ed Deak, NEEP Connecticut Forecast Manager
— Ryan Wallace, Maine Presenter; Charlie Colgan, NEEP Maine Forecast Manager
— Alan Clayton-Matthews, NEEP Massachusetts Forecast Manager
— Dennis Delay, NEEP New Hampshire Forecast Manager
— Jeff Carr, NEEP Vermont Forecast Manager
2:45 p.m.Infrastructure Needs and Our Electrical Grid for the 21st Century
Bill Zarakas, Principal, The Brattle Group
— James, Daly, Vice President, Eversource
— Jane Michalek, Vice President, Global Partners
— Greg Crisp, Business Development, Spectra Energy Inc.
— Jim Burpee, President/CEO, Canadian Electricity Association
— Curtis Cole, Director of Business Development, Kinder Morgan Energy Partners
4:15 p.m.Technology, Innovation and Sustainability: Developing and Funding Our Energy Future
Matthew Bunn, Professor of Practice, Co-Principal Investigator, Project on Managing the Atom,
Harvard’s JFK School of Government
— Dr. David Rapaport, Head of Technology Innovation Management US for Siemens Corporation,
Corporate Technology
— Kevin Ramsdell, Advanced Facilities Specialist, General Dynamics Mission Systems
— Lucas Missong, Senior Vice President, Boston Energy Investors Fund
5:15 p.m.State and Regional Energy Policy: New England Energy Policy in the 21st Century
Dean Bruce Magid, Martin and Ahuva Gross Chair in Financial Markets and Institutions
Director, Perlmutter Institute for Global Business Leadership, Brandeis IBS
Henry Lee, Jasmin M. Jaidah Family Director of the Environment and Natural Resources Program,
Harvard’s JFK School of Government
— Jonathan Raab, Convener and Moderator, New England Restructuring Roundtable
— Mark Kalpin, New England Council Energy and Environment, Partner, WilmerHale
— Eric Wilkinson, Senior External Affairs Representative, ISO New England
— Secretary Matthew A. Beaton, Executive Office of Energy and Environmental Affairs
6:15 p.m. Reception
7:00 p.m.The Perlmutter Award For Global Business Leadership Dinner
Honoring Eric Spiegel, President and CEO Siemens USA
www.brandeis.edu/global
www.maroundtable.com
© 2015 Brandeis International Business School. Created by BullsEye Resources, www.bullseyeresources.com.
http://neepecon.org
2
Table of Contents
Conference Overview
4
Conference Themes
5
New England Energy Challenges and Trends
6
Infrastructure Needs and Our Electrical Grid for the 21st Century
12
Technology, Innovation and Sustainability: Developing and Funding Our Energy Future
19
State and Regional Energy Policy: New England Energy Policy in the 21st Century
24
3
Building the Backbone of Energy Efficiency
New England’s Competitiveness, Innovation, and Sustainability in the 21st Century
conference overview
Over 100 people gathered on June 2, 2015 to discuss the challenges of building a sustainable economy around an efficient energy system for the 21st Century. The six New England states face some of the highest electricity costs in the country with an infrastructure
that is unable to deliver low-cost and flexible energy sources to its customers. Regional
energy policy is not well coordinated, particularly when we look at the longer term goal
of reducing carbon emissions by 80% while containing electricity costs. To build a competitive and flexible energy system for the 21st century, New England needs collaborative
partnerships and a substantial commitment of resources by all the players involved.
The “Building the Backbone of Energy Efficiency” conference looked at the volatility of
global energy markets, as well as the need to address gas pipeline bottle necks in New
England while building a more flexible electrical grid. The energy challenges of building a
vital and sustainable economy over the next thirty years are considerable.
New England faces a “new normal” in world markets with the low price of oil & gas
arising from an oversupply from US shale producers and OPEC/Saudi players. The region
faces significantly higher electricity rates compared to the rest of country because of
logistics/infrastructure issues.
There is significant variance across the New England states in terms of energy sources,
infrastructure, and grid capacity; nonetheless the region (i.e., RGGI) is committed to
reducing its carbon footprint and consumption of traditional fossil fuels over the next 20
years.
The pipeline infrastructure, bottlenecks, and lack of flexibility in our electricity grid has
resulted in higher costs. The states need to invest and develop a more cost efficient, coordinated distributed energy system that connects to lower cost energy sources outside
of New England.
Longer term the country needs to make significant investments through collaborative
partnerships in new technologies that will meet the energy demands of New England
and the rest of the country while addressing the forecasted impact of climate change.
The policy challenges of formulating a competitive sustainable energy policy are huge,
particularly over the longer term time horizon. The private and public sectors need to
find better ways to collaborate, fund infrastructure, support technology innovations, and
manage costs, while providing flexible energy sources over next thirty years.
The conference highlighted the need to develop a forward looking energy policy and
reconfigured infrastructure that is flexible, lower cost, and able to meet the changing demands of the New England economy. This will only come through informed dialogue and
leadership that is responsive to the short and longer term needs of the region. New England will not thrive or grow without a competitive 21st energy plan that is implemented
in a deliberate and decisive manner over the coming years. For state executive summaries,
go to the NEEP website at http://neepecon.org/conference-presentations/.
4
Conference themes
Trends: With economic growth, consumers are demanding more energy across global
markets, as new technologies (fracking) and OPEC production policies increase supply.
This has resulted in a dramatic decrease in the price of oil, lower oil and gas production
costs, and a decline in the carbon intensity of the global economy. This low-price environment may be the “new normal” for some time. In fact, the United States may begin
to export energy for the first time in 40 years. However, New England is at the end of the
energy supply chain where the logistics of pipelines and delivery contribute to higher
electricity and gas prices than the rest of the country.
The New England states face a variety of costs and infrastructure issues that are not well
coordinated across the region (see NEEP state write-ups with link here).
Infrastructure: Electricity prices are on the rise across New England. Despite an effort to
lower costs to consumers through deregulation and increased competition in the 1990s,
New England has higher cost of power generation along with an inadequate infrastructure that cannot deliver lower cost energy efficiently. Energy experts are looking at a variety of options: from pipeline expansion that could provide adequate gas supply to meet
peak demand, more diversification of supply (e.g., wind and hydro), and energy demand
efficiency, so that utilities can improve the grid and decrease electricity prices.
Technology: The energy sector faces daunting challenges of providing the world with
affordable, reliable, and convenient energy through investments in new technologies,
while mitigating the impact of climate change. Addressing these challenges requires
new technologies, significant funding, and policies that spur innovation. The energy
sector needs government engagement, support, and funding—which requires a fundamental rethinking of how governments partner with the private sector in technology
investments.
Policy: New England’s energy sector faces significant challenges. New England is at the
end of the pipeline. The region has high energy prices, price volatility, an aging infrastructure, a lack of capacity, and a slow rate of bringing new capacity online. Historically, Massachusetts and New England have been innovators in developing policies and
collaborations to address the challenges ahead. State policies have improved demand
management, energy efficiency, and innovation. New policies are needed to address the
challenges of today’s volatile prices, constrained capacity, and climate change. Strategies and plans need to be developed and implemented effectively to address the real
challenges of the region.
The conference also recognized the innovative leadership of Eric Speigel, the CEO of
Siemens USA. Siemens is a leader in developing innovative sustainable energy technologies through partnerships with universities, energy incubators, and entrepreneurs to
remain on the forefront of innovative technologies. Eric Speigel, and Seimens USA under
his leadership, are applauded for their socially responsible, visionary, and successful implementation of new technologies with active participation of the Siemens management
team and Eric Speigel.
5
New England Energy Challenges and Trends
Introduction: John Ballantine, President, New England Economic Partnership (NEEP), Brandeis International Business
School
Speaker: Kevin Lindemer, Managing Director, IHS Global Insight/Cambridge Energy Research Associates
Overview
Consumers are demanding more energy globally, as new technologies (especially hydraulic fracking) and OPEC production policies (e.g., Saudi Arabia’s decision to defend market
share by holding production at current levels) are increasing the supply. This has resulted
in a dramatic decrease in the price of oil, lower oil and gas production costs and a decline
in the carbon intensity of the global economy. This low-price environment may be the
“new normal” for some time. In fact, the United States may begin to export energy for
the first time in 40 years. However, New England is at the end of the energy supply chain
where the logistics of pipelines and delivery contribute to higher oil and gas prices than
the rest of the country.
Context
John Ballantine introduced the conference and set the stage for the day. He explained
that we face the same issue today that has existed for some time: formulating a competitive and efficient energy policy in a complex and dynamic world. The challenges are even
greater today based on the realities of climate change. For New England, the challenge is
to have energy supplied at a competitive price to keep the region vital. Competitive energy prices are a function of infrastructure, innovation, and policy at the state and regional
level. The focus of this conference was on state-level infrastructure needs, energy innovation, and regional policy.
Kevin Lindemer kicked off the conference, by looking at New England within the context
of global, national, and regional trends of technologies, demands, supply logistics, and
energy policies.
Key Takeaways
There have been major changes in world energy markets and policies over the
past few years.
Over the last decade, U.S. and world energy markets have undergone more major changes
than any period in history, many of which were abrupt and unanticipated. The discussion
today is on the oil and gas sector that has experienced drastic changes in prices, supply
and demand shifts, technology advances, demographics changes, and new policy priorities.
Aging demographics are shifting consumption patterns in developed countries that account for 40% of the global population; the percent of people at working age is declining.
As people age, they consume less energy, especially oil, and this leads to a mature energy
market and a per capita drop in energy consumption in many countries.
New technologies—specifically hydraulic fracking and horizontal drilling—have enabled
the United States to become the new swing producer for oil and gas. Producers still need
to deliver the oil and gas to the end market, which is creating many logistical challenges,
as there are many bottlenecks and not a well-designed, efficient pipeline network in the
U.S. In addition, the United States and individual states have enacted numerous policies—
fracking, carbon emissions, railroad safety—over the last few years that impact almost
every aspect of energy.
6
In light of the United States’ new role as a swing producer, Saudi Arabia is defending its
share of the oil market. In November 2014, it surprised almost everyone and choose not
to drop its OPEC production targets, but maintain output (over 10 million barrels per
day) and let oil prices drop to their current levels ($50/barrel from over $100). Now, North
America shale producers are responding to the drop in prices by cutting drilling activity,
which eventually will result in less shale oil production.
The growth in worldwide supply and slowing demand has contributed to a collapse in oil
prices. The oil price spikes in 2012-14 show market forces at work: high prices triggered
increased drilling, more supply, and slowing demand, which led to decreased prices.
Domestic gas prices collapsed much sooner than oil as large volumes of shale gas hit the
first; oil prices dropped more recently due to upswing in shale oil and Saudi proOilmarket
and Gas
Prices: both have collapsed from supply
duction levels.
pressures…again
$140
$10.00
2014 $
Figure 1
The Collapse in Oil and Gas Prices
$9.00
$120
$8.00
to what we might
call the relatively
recent new norm
for oil and gas
prices. . . .
This low gas price
is probably the
new norm for
natural gas.”
– Kevin Lindemer
$7.00
$6.00
$80
$5.00
$60
$4.00
Dollars per mmbtu
Dollars per barrel
$100
“We are now back
$3.00
$40
$2.00
$20
Crude oil
2014
2010
2006
2002
1998
1994
1990
1986
1982
1978
1974
1970
1966
1962
1958
1954
1950
1946
1942
1938
1934
1930
1926
1922
$0
$1.00
$-
Natural gas
The efficiency of energy use is improving as demand grows.
Per capita energy demand is on the rise globally as countries grow—people want and consume more energy as their economies get stronger—however the overall energy intensity
of the global
economy
has been
falling More,
steadilybut
since
Energy
Demand:
People
Will Need
the1980, as the energy intensity per
$1,000 of GDP
withfor
theGrowth
more efficient
use of energy.
Economy
Willimproves
Need Less
With Less
CO2
0.25
3.00
High energy prices and government energy efficiency policies
are causing the long established improvement trend in the global
economy energy efficiency to accelerate.
2.50
0.20
Figure 2
Expected Energy Demand
2.00
0.15
1.50
0.10
Demand tonnes/thousand $ of GDP
1.00
Demand tonnes/capita
0.05
0.00
CO2 emissions tonnes/tonne of
energy
1990
1995
2000
2005
2010
2015
2020
2025
0.50
2030
2035
0.00
7
As the demand for energy is rising with growth and efficiency is increasing, the mix of energy sources is shifting away from coal, which results in a modest improvement in the carbon intensity of the economy. Government policies have played a role in containing CO2
emissions from energy, but the biggest factor is the changing mix of the energy resources.
Globally, carbon-heavy coal is decreasing in use, now generating 30% of global primary
energy. Oil use has also decreased to 30%, while natural gas is rising, now making up 24%
of primary energy use. Hydro and nuclear are constant, at 5-6% each, and renewables only
constitute 1%.
The United States and China each comprise 20% of global energy use. While the United
States is moving away from oil, China has become one of the largest importers of oil, relying heavily on the Middle East.
“Renewable,
despite the last
decade or two,
is still only at
one percent [of
primary energy
use].”
– Kevin Lindemer
Oil and gas reserves are at an all-time high. U.S. shale production adds to
supply, impacting price.
Despite the volatility in oil price and changes in government policies, oil and gas reserves
have been growing at a near linear rate since 1980, and reserves now stand at a record
high. At the current rates of consumption, including increased natural gas use, there are
World Oil Reserves: the highest level in history and
approximately 50 years of both oil and gas reserves available to supply the market.
growing faster than demand
60
1,800
1,600
50
Years
1,200
1,000
30
800
20
600
Billions of barrels
1,400
40
Figure 3
World Oil Reserves: The Highest Level
in History and Growing Faster than
Demand
400
10
200
0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: BP Statistical Review
Reserves
0
Years of reserves
70
200
180
60
160
50
120
Years
40
100
30
80
Trillion cubic meters
140
Figure 4
World Natural Gas Reserves: The
Highest Level in History and Keeping
Pace with Demand
60
20
40
10
20
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: BP Statistical Review
0
Reserves
0
Year of reserves
8
The U.S. shale oil revolution was one of the important factors contributing to the 2014 collapse in oil prices. Shale oil and development of other resources lead to surplus capacity
coming online in 2011-2014. Since 2008, U.S. light oil has contributed almost four million
barrels a day of the net increase to the world supply, offsetting the declines everywhere
else in the world.
Cumulative change in crude oil production from 2008-2014
5
Million barrels per day
4
United States total
3
US tight oil only
2
Canada
1
0
-1
-2
-3
-4
-5
Figure 5
World Natural Gas Reserves:
The Highest Level in History
and Keeping Pace with
Demand
“If it hadn’t been
for U.S. shale, the
oil price would be
a lot higher and
OPEC would be
straining to meet
supply.”
– Kevin Lindemer
Russia
2008
2009
2010
2011
Saudi Arabia
2012
2013
2014
Tight oil
Net change for rest of the
world
Sources: IHS Energy, IEA, EIA. Note: Figures do not include OPEC condensate and OPEC/non-OPEC NGLs. The term “North
America” in the title of this slide refers only to Canada and the United States.
© 2014 IHS
International policies have also significantly contributed to the collapse of oil prices. The
tipping point for prices was Libya’s ability to come back into the market with large oil
shipments. Libya’s oil had been off the market because of the turmoil around the Arab
Spring and Qaddafi; when Libyan production came back so quickly (despite no functioning
government), the market was unable to absorb the additional supply of oil. In November
2014, Saudi Arabia’s decision at the OPEC meeting to defend market share and not drop
production levels precipitated a major price drop. The day after the announcement, the
price of oil dropped about $5 per barrel.
Although oil prices have started to rise (and fall) again, they are expected to remain under
pressure through 2016, due to the excess supply. However, between 2017 and 2020, oil
prices are expected to rise, due in part to a decreased surplus, as that inventory is worked
off and higher-cost oil is brought into production to meet demand. At the moment, low oil
prices and weak outlook is causing the cancellation or delay of many long-term oil and gas
development projects. The market will find a higher price equilibrium as demand grows
and supply comes back into balance.
With U.S. oil and gas production at near record levels, imports are slowing and
the United States is gearing up for export.
Once a major importer of oil and gas, the United States is now seeing record high levels of
production. By 2020, the United States could be a large liquefied natural gas (LNG) supplier. If Congress lifts the bans on exporting crude oil, the United States could also become a
major international supplier.
9
US Oil and Gas Production: shale has driven to record
high levels
27
9.5
Shale Boom
9.0
Figure 6
U.S. Oil and Gas Production
25
23
8.0
7.5
21
7.0
19
6.5
Million barrels/day
Trillion cubic feet/year
8.5
6.0
17
5.5
15
5.0
Natural gas
Crude oil
While the country contemplates potential export markets, the United States is quickly
limiting imports from other countries, including Canada and Nigeria. The United States
is exporting crude oil to Canada, which is one country where crude oil can be shipped.
Petrochemical manufacturing is also moving back to the United States due to low-cost
gas and abundant supply. The United States is also exporting refined fuels; it is one of the
largest exporters of diesel fuel globally.
Advances in technology have meant that low prices have not cut production as quickly as
expected. While the number of drilling rigs is falling, gas production is rising since each
rig is able to drill more wells. Over the past five years there have been huge productivity
improvements oil and gas development.
However, U.S. oil and gas production is expected to decline slowly in 2015 with the dropoff in rig activity and fall more quickly by the end of 2016 with the big decline in oil and
gas investments.
New England residential power and natural gas prices are among the highest
in the United States, driven by logistics issues.
New England’s residential power and gas prices are among the highest in the United
States. The problem with natural gas prices is the logistics or pipeline system that transports hydrocarbons from production areas, like the Marcellus formation in Pennsylvania, to
New England markets. The cost of supply isn’t the issue; other regions 1,000 miles away
(like Florida) are receiving natural gas from the Marcellus formation at good market price,
while New England states do not because there is not an efficient logistics/pipeline system
delivering gas to the region.
In 2014, southern New England residential power prices were 45% over the national average, while residential gas prices were 33% above average. Northern New England residential power prices were between 30% and 40% above average last year, with residential
gas prices hovering between 45% and 50% above the national average.
10
Figure 7: New England Residential Energy Prices
New England Residential Natural Gas Prices:
rising relative to other regions
New England Residential Electricity Prices:
some of the highest in the country
160%
180%
170%
150%
160%
140%
150%
140%
130%
130%
120%
120%
110%
110%
100%
100%
Southern NE/US
Northern NE/US
PA/US
Southern NE/US
NY/US
Northern NE/US
PA/US
NY/US
On the other hand, when it comes to the liquid fuels market—gasoline and diesel—an
unregulated product with an efficient logistics system, the New England prices for liquid
fuels is closer to the national average. In 2014, southern New England prices were only
2-3% above average, and northern regional prices were 4-5% higher.
Figure 8: New England Petroleum Markets
New England Diesel Fuel Prices: closely follow
the national trend and level
New England Retail Gasoline Prices: closely
follow the national trends and level
108%
110%
106%
108%
104%
106%
102%
104%
100%
102%
98%
100%
96%
98%
1994
1996
1998
2000
2002
New England
2004
2006
2008
2010
2012
Mid-Atlantic
2014
1998
2000
2002
2004
New England
2006
2008
2010
2012
2014
Mid-Atlantic
Other Important Points
New England demand trends. New England net energy generation and sales peaked
nearly a decade ago and are on the decline. Power diversity has also declined dramatically in the past few years, moving the focus to natural gas and nuclear.
Tight oil. Even with abundant reserves, the potential still exists for “tight oil” worldwide.
North America’s shale oil industry developed quickly because several factors were in place:
an ecosystem, policies, mineral rights, infrastructure, companies, and financing. These
factors don’t exist in the same combination elsewhere, meaning the development of major
shale resources around the world will be slower to take off than in North America.
Declining imports. In recent years, the United States imported nearly two million barrels of oil per day from Nigeria. Today, Nigeria sends only 50,000 barrels a day as the
United States pulls back on imports.
Jones Act. The United States has no LNG Jones Act carriers today, which limits natural gas transportation between American ports. The Jones Act requires that U.S. built,
flagged, and crewed ships move products between U.S. ports. Since these ships are
expensive to build and operate, they aren’t typically used in gas transportation.
11
Infrastructure Needs and Our Electrical Grid
for the 21st Century
Moderator: Bill Zarakas, Principal, The Brattle Group
Panelists: Jim Burpee, President/CEO (retired), Canadian Electricity Association; Curtis Cole, Director of Business
Development, Kinder Morgan Energy Partners; Greg Crisp, Business Development, Spectra Energy Inc., James Daly, Vice
President, Eversource, and Jane Michalek, Vice President, Global Partners
Overview
Electricity prices are on the rise across New England. Despite an effort to lower costs to
consumers by spurring competition through deregulation at the start of the 21st century,
New England has higher cost of power generation along with an inadequate infrastructure
that is unable able to deliver lower cost energy efficiently.
From pipeline expansion that could provide adequate gas supply to meet peak demand,
to energy supply diversification and energy efficiency, utilities and energy experts are looking at a variety of options to improve the electric grid and decrease end-user electricity
prices.
“Centralized
resources aren’t
going away. In
the Northeast,
electricity is not
going to shift
to distributive
Context
resources.”
Panelists with a wide variety of perspectives provided insight on the issues facing the electrical utilities/grid and potential solutions that could increase supply and decrease costs.
– Bill Zarakas
Key Takeaways
As trends impact the electricity industry infrastructure, centralized resources
remain key.
Bill Zarakas focused on trends that create opportunities for the electricity industry and the
supporting infrastructure.
Lines are blurring within utilities; where power supply planning, transmission, and distribution were once distinct silos within a utility, now managers need to contract for lower
cost sources and distribute it to customers across the grid in a timely and reliable manner. We no longer have a fixed distribution system for electricity, with energy resources
being located in the distribution system.
Demand-side resources, including energy efficiency, are seen as a possible way to defer
an estimated $600 billion in growth-related investments and upgrades to the electric
distribution system, which currently has a market value at $300 billion.
Distributed energy resource (DER) costs are declining, but centralized resources are less
expensive on a wholesale basis, due to scale economies and distribution networks of
traditional power generation (coal and hydro).
Quantifying demand met by DER—including distributed generation, energy efficiency,
demand response, and storage—is quite difficult at the moment, according to ISO-New
England, although there are substantial step to make it more observable. However, the
difficult in quantifying DER isn’t preventing other states from controlling traditional resources; New York ISO is implementing Reforming the Energy Vision (REV), with a goal of
making DER resources more available.
12
Even with REV in place, centralized power will remain the dominant resources for the next
decade. NYISO has forecasted that DER, which provides just 1% of energy today, will
be just 8% of the overall demand by 2025, although other scenario estimates put DER
as high as 18%. In these alternative forecasts, most of the DER comes from traditional
demand-side management, especially energy efficiency. In almost all situations centralized
resources will account for approximately 90% of electricity over the next 10 years.
Increased infrastructure spending across North America impacts energy rates.
Jim Burpee, the retired CEO and president of the Canadian Electricity Association, explained that the anticipated 20-year cost of building out Canada’s electricity infrastructure
is $350 billion. Over the last few years, Canada has spent in excess of $20 billion per year,
which is 100% above earlier annual expenditures (of $8-11 billion). Burpee predicted that
the United States will experience similar increases, In other words, infrastructure expenditures will impact energy prices across North America as rates increase to recover capital
expenditures.
“For someone to
go off the grid
on their own, it
would cost a lot
more to replace
the reliability you
get from the grid.”
– Jim Burpee
Across Canada, whether Manitoba, where consumers are paying $0.06/kWh, or Halifax,
where people are paying $0.15/kWh, electricity prices stir strong emotional responses
from residential customers. However, we need to put these rates in perspective where
German residents spend an average of 2% to 3% of total household spending on electricity. In Germany, the average price is $0.45/kWh, for an average of 3,500 kWh per year,
whereas in the United States and Canada, we pay far less per kWh but consume approximately 10,000-12,000 kWh per year. Germans consume considerable less electricity per
capita partly because they don’t have air conditioning.
Burpee sees a growing role for distributed electricity generation (“microgrids”) that will
supplement, but not replace, centralized grid production. Examples where microgrids
could have value include for charging electric vehicles in remote locations or emergency
response situations when the grid becomes unavailable. Generally, residents will not go
“off the grid” with microgrids because the economics and reliability are not comparable to
the value of centralized energy sources.
The U.S. electricity infrastructure relies on Canadian production, and it will probably expand over the coming years. Currently, the United States consumes about 10% of Canadian power production via 35 international power lines between the two countries, with six
more in development.
The proposed NED pipeline aims to alleviate supply bottlenecks, providing
low-cost natural gas to New England.
Curtis Cole described Kinder Morgan’s current activities with the Tennessee Gas Pipeline
(TGP) and the company’s efforts to improve/expand the Northeast Energy Direct (NED)
project.
On any given day, Kinder Morgan manages the flow of natural gas coming into its TGP.
Cole said that while demand and available product exist, the market demand exceeds the
amount that the pipeline can transport. Over the past three winters, supply restrictions
averaged between 0.7 billions of cubic feet (BCF) per day to 1.4 BCF per day; during the
cold winter of 2015 Kinder Morgan saw restrictions up to 2.6 BCF per day. Even during
summer months, Kinder Morgan is restricting flow as parts of the system come down for
maintenance.
13
Kinder Morgan feels it needs to add to pipeline capacity to its NED project. It is proposing
a bidirectional pipeline that will fundamentally change natural gas flows into the region.
This will make incremental gas supplies available to local electricity exchange carriers
(LEC), gas-powered generators, and industrial end users. The pipeline expansion project is
expected to enhance the reliability of the New England grid by creating a new high-capacity, high-pressure transmission gas supply route that would be able to handle an unexpected outage of one of the LEC transmission systems.
The NED is in the pre-filing stage; however, Kinder Morgan has already contracted
500,000 dekatherms (Dth) per day from the Marcellus and Wright shale fields. The pipeline
also provides electric distribution companies (EDCs) with the opportunity to lower energy costs. The pipeline would also be a flexible, integrated response to renewable energy
sources used by the EDCs. Natural gas operates as a reliable backup to wind and solar
farms.
Spectra Energy’s pipeline projects connect supply to markets to alleviate
reliability concerns.
Greg Crisp of Spectra Energy, another pipeline company serving New England, presented
an alternative series of gas supply options. He described three possible pipeline projects
that could expand electricity capacity in New England. These projects would provide
greater electricity reliability on peak days, and would impact pricing as well.
“The NED project
provides a direct
connection
to low-cost,
abundant, and
environmentally
clean natural gas
supplies, which
also helps lower
and stabilize
energy costs.”
– Curtis Cole
The price on Spectra’s existing natural gas pipeline—the Algonquin pipeline, which serves
southern New England—drives electricity pricing variability in New England. Crisp showed
that average price for 2014-2015 including the winter was $5.95/Dth off the Algonquin
pipeline in New England, whereas the average price in the New York area for that same
time period was $3.73/Dth. In the winter, the Algonquin price spiked to more than $10/
Dth. Pricing is generally more consistent in summer: on June 1, the New York price was
$1.30/Dth and the Algonquin price was $1.60/Dth, which is approximately one dollar beMeeting New England and Atlantic Canada
low gulfNatural
coast prices.
Gas Infrastructure Needs
Maritimes &
Northeast
Texas Eastern
Algonquin
Maritimes & NE
Millennium
Iroquois
Tennessee Gas
BOSTON
Algonquin
Figure 1
Algonquin Pipeline and
Price Impact
$5.95
AGT Citygate1
“The supply of
Texas Eastern
NEW
YORK
$3.73
natural gas is not
1. Average Monthly Historical natural gas price ($/Dth)
April 2014 – March 2015
2. M3 average trading at $0.06 discount to Henry Hub
Market Zone 31,2
Expansion shale gas will allow for movement of more natural gas than Algonquin can
handle today. The Marcellus shale fields generate approximately 13 BCF of natural gas per
day, but Algonquin can only move 1 BCF per day throughout the region. This physical bottleneck is one of the major constraints restricting supply and impacting today’s gas price.
the problem. The
delivery system
into the region is.”
– Greg Crisp
14
Spectra has three projects that would alleviate the constraints and connect the natural gas
supply directly to end use markets.
AIM: Adding 342 million dekatherms per day (MDth/d), this project would increase
throughput by 30% from west to east. The project focuses on southern New England
local distribution companies. Planned in-service date: second half of 2016.
Atlantic Bridge: The Algonquin system expansion aims to provide an additional 222
MDth/d. The AIM and Atlantic Bridge projects increases total throughput of the pipeline
system by 50%. This proposed project focuses mainly on southern New England LECs as
well as northern New England and Atlantic Canada industrial customers. Planned in-service date: 2H 2017.
Access Northeast: A combined Spectra Energy, Eversource, and National Grid project,
this project serves over 70% of New England generation. The proposed expansion would
increase capacity by more than one BCF/d and will provide fuel for 5,000 megawatts
(MW)
of electric
generation.
Planned
in-service date: 2H 2018.
Meeting
New England’s
Natural
Gas Needs:
Leveraging Existing Infrastructure
Texas Eastern
Algonquin
Maritimes & NE
Millennium
Iroquois
Tennessee Gas
Maritimes &
Northeast
AIM
� Capacity: 342 MDth/d
� In-Service: 2H 2016
Figure 2
Spectra Energy Projects
Atlantic Bridge
� Capacity: 222 MDth/d
ALGONQUIN
Access Northeast
� Capacity: Over 1 Bcf/d
Texas Eastern
Connects Supply Directly to End Use Markets
to Alleviate Constraints / Reliability Concerns
Competitive New England energy markets must balance policy initiatives and
energy costs.
During the early 2000s, the restructuring and deregulation of the New England electric
market provided more consumer choice and competition. However, even with competition, electricity prices are still rising.
In addition to natural gas delivery constraints, James Daly noted that utilities also must
deal with the costs to meet state clean energy targets. Infrastructure development may
alleviate some of the long-term costs and make the grid more resilient, and smarter, for
customers, but those investments cost money which is reflected in today’s bills.
Like many other New England utilities this past winter, Eversource had to explain the
increase in energy prices to its 3.5 million customers. In January 2015, electricity prices
jumped from under $0.10/kWh to $0.15/kWh across the region due to wholesale rate
increases as well as costs associated with renewable portfolio standard requirements. After
the winter, prices have since dropped to back to $0.10/kWh.
15
Figure 3
Rising Electricity Prices
Natural Gas Prices Causing the Problem
High winter natural gas prices driven by pipeline delivery constraints, have
resulted in escalating electricity prices.
Delivered Natural Gas Prices
Boston Compared to Chicago - Weekly Average $/MMBtu
Boston
$40
$30
of high first-half
$300
winter prices
Average On-Peak $/MWh
driven by a lower
$200
$25
second half.”
$150
$20
$15
– Greg Crisp
$100
$10
$50
$5
$0
New England Wholesale Electricity Prices
$250
$35
the pattern over
the next few years
Chicago
$45
“We’re going to see
Jan 2014
April 2015
$-
Jan 2014
April 2015
4
New England’s separation from other parts of the country, which have cheaper gas, also
affects pricing. Natural gas pipeline constraints drive spikes in natural gas and New England wholesale electricity prices, which are significantly above other parts of the country.
Figure 3, above, shows the drastic price spikes seen in New England, especially during
April 2015, as compared to Chicago, which is served by shale gas pipeline delivery with
few supply constraints.
Ambitious Clean Energy Goals Will Impact
Regional Prices
Figure 4
Natural Gas Prices Causing
the Problem
RPS Goal
22.1% RPS by 2020
(Solar generation of 1,600 MW)
Carbon Emission Goal
80% CO2 reduction by 2050
Massachusetts Emission Targets
Massachusetts RPS Targets
Millions of tons of CO2
% of Required Renewable Energy Class I and II
25%
100
90
20%
80
70
15%
60
50
40
94
84
30
17.10%
12%
5%
20
10
0
22.10%
10%
71
19
1990
Actual
2010
Actual
2020
Target
2050
Target
0%
2%
2005
Target
2010
Target
2015
Target
2020
Target
5
In addition, ambitious carbon mandates are also increasing costs. Massachusetts specifies
an 80% reduction in CO2 emissions by 2050. By 2020, 22% of energy must be renewable
portfolio standard (RPS). The pricing associated with these mandates is impacting costs:
Wind power costs $80/megawatt hour (Mwh) and can be purchased at this rate on a 15year contract. Solar, which must generate 1,600 MW of Massachusetts energy by 2020,
costs more than $500/Mwh. The costs of renewables, which have already reached $1
billion annually, are being passed on to customers.
16
Access Northeast Pipeline
Figure 5
Renewable Resources Adding Over
$1 Billon to Customer Bills
• Direct connection with
Northeast generators
• Takes advantage of existing
infrastructure
•
•
•
•
•
Built to handle the peaks
Timely
Scalable for future growth
Multiple supply options
Potential to lower the region’s
energy cost by $1 billion
annually
Serves over 70% of New England generation –
will provide fuel for 5,000 MW of electric generation
8
Projects like Access Northeast and Northern Pass Transmission can help Eversource and
other utilities pass on savings to customers. Daly estimated that during a normal winter,
Access Northeast would have decreased costs to New England customers by $1 billion.
The 2014-2015 Polar Vortex winter increased costs by $3.6 billion; Access Northeast
would have knocked out $2.5 billion of those costs.
Additional pipeline capacity may not be the answer for 60-70 days of high
demand.
Jane Michalek of Global Partners made a counter argument to the other panelists. While
many energy suppliers see building out new infrastructure and adding pipeline capacity as
the solution to peak demand issues and pricing, Michalek believes that the problem is the
lack of firm longer-term contracts for supplies that serve the electric grid. Beyond renewables, there are few incentives for power generators to contract for firm delivery of natural
gas, oil, nuclear, liquefied natural gas, or propane.
Despite the record low temperatures of February 2015—New England saw temperatures
14% lower than 2014—regional natural gas prices dropped by 41%. This decrease was driven by an overall 10% supply boost in LNG imports and local oil, as seen in Figure 6, below.
In Q1 2015, Imported LNG and Local Oil Supply Kept Prices in Check
Comparison of average natural gas spot prices
Comparison of Jan/Feb LNG imports – 2014 vs. 2015
Source: Platts Gas Daily Price Survey- Algonquin city-gates
Figure 6
Prices Remain in Check During a
Harsh Winter
Source: US DOE and Canada NEB import records
2014-15 New England wholesale natural gas and oil prices
Source: Platts
4 │ New England Economic Partnership │ June 2, 2015
17
Michalek explained that a mix of fuels—oil, natural gas, and propane—should be part of
the region’s energy/electricity capacity. A mix of fuels could provide the buffer for supply
during the 60-70 peak demand days each year in New England. This would decrease the
need for an expensive, year-round, high-capacity pipeline infrastructure.
“The new, largescale natural gas
pipelines brought
Cole and Crisp see the natural gas supply problem not as just a 60- to 70-day peak problem, but as a problem that impacts electricity prices year round.
into the region to
Currently Massachusetts, Maine, and New Hampshire are in the process of determining
whether the pipeline expansion projects should move forward and the costs of pipeline
construction passed on to retail customers.
day problem may
serve a 60- to 70overwhelm the
region’s economic
appetite for
natural gas”
– Jane Michalek
18
Technology, Innovation and Sustainability
Developing and Funding Our Energy Future
Moderator: Matthew Bunn, Professors of Practice, Co-Principal Investigator, Project on Managing the Atom, Harvard’s
John F. Kennedy School of Government
Panelists: Dr. David Rapaport, Head of Technology Innovation Management US for Siemens Corporation, Corporate
Technology, Kevin Ramsdell, Advanced Facilities Specialist, General Dynamics Mission Systems, and Lucas Missong,
Senior Vice President, Boston Energy Investors Fund (ARES)
Overview
“Energy is the
The energy sector faces daunting challenges of providing the world with affordable, reliable, and convenient energy while not aggravating the impact of climate change. Innovation is the key.
life blood of
Dealing with these challenges requires new technologies, significant funding, and policies
that spur innovation. The energy sector needs government engagement, support, and
funding—which requires a fundamental rethinking of the partnering role of government in
energy—working with private sector in joint technology investments.
and modern
modern society
economies.”
– Matthew Bunn
Context
Each panelist provided his perspective on how to increase innovation in the energy sector,
and how to improve energy technology.
Key Takeaways
The U.S. government needs an effective energy technology policy to motivate
innovation.
The world faces significant energy challenges. These include climate change, energy
security challenges, and poverty, as over one billion people on the planet lack access to
modern energy.
Matthew Bunn and his colleagues considered the role of the U.S. government in supporting energy innovation that is covered in a Harvard Kennedy School book that he co-edited,
Transforming U.S. Energy Innovation.
Some of the conclusions in the book included: the United States needs to double energy research, development, and support demonstration (R&D) investments to encourage
significantly faster technological progress. R&D investment can lead to huge returns; if we
pursued recommended R&D funding over the next twenty years, it has the potential to
generate $80 to $350 billion in benefits by 2050.
“We argue that
there are huge
returns to
an increased
investment in
RD&D.”
– Matthew Bunn
The United States also needs to transform the way that energy institutions are run. Labs
need sustained/consistent budgets that hold managers accountable for meeting objectives; and lab managers need the flexibility to shift budgeted funds to the best opportunities. The government should also be involved when there is too much risk for the private
sector (like carbon sequestration). We may need a new institution for managing largescale technology demonstration projects. The energy R&D approach should understand
the risks and acknowledge that occasionally there will be failures. R&D is about pushing
19
boundaries, and stumbles, without becoming mired in government investigations every
time a problem occurs. Unfortunately, Congress is making significant federal funding reductions and moving in the wrong direction.
Bunn felt that we need a new approach of cooperating with and working with the private
sector. There should be more learning by doing, where organizations collect and analyze
data on what worked and what didn’t work. For example, setting a substantial carbon
price will also motivate private sector innovation, driving businesses and individuals to find
solutions that include the cost of carbon on our environment and economy.
“Policymakers need
to understand
the role of
government
RD&D.”
– Matthew Bunn
Since energy is a worldwide challenge, international cooperation is also key to transforming U.S. energy innovation. The U.S. government needs to figure out how to interact with
the energy R&D initiatives in other countries. The worldwide market for energy supply and
efficiency technology is likely to be in the tens of trillions of dollars over the next decade.
The United States needs to make sure it is a substantial player in these R&D initiatives.
Bunn shared the criteria for an effective energy technology innovation policy (summarized
by the acronym CASCADES, Figure 1).
CASCADES Criteria
Comprehensive: in innovation stages, policy tools
Adaptable: learning and changing as it proceeds
Sustainable: built to last, including bipartisan support
“We need a new
approach to
cooperating and
Figure 1
Criteria for an Effective Energy Technology
Innovation Policy
motivating the
Cost-effective: most progress per dollars spent
private sector.”
Agile: responding to new opportunities and needs
– Matthew Bunn
Diversified: covering all potentially significant technologies
Equitable: among technologies, companies, regions
Strategic: clearly defined goals, plausible paths to them
Open innovation strategies allow companies like Siemens to incubate ideas
outside its core business.
Innovation at Siemens has two main aspects: 1) the innovation has to have economic
value, showing returns within three to five years; and 2) it needs to solve business needs or
requirements. Ideas can come from outside the core business, and may not result in immediate company benefits (revenues). Siemens uses open innovation to promote R&D.
Open innovation allows the businesses to look outside of the organization. Rapaport said
that at Siemens, this means working with industries, academia, and the government, as
well as with internal and external experts, to encourage creative thinking. Open innovation
eliminates the siloed thinking and instead brings together a network of talent to come up
with new ideas.
“Open innovation is
looking outside
of the internal
organization.
Rapaport discussed the four types of open innovation processes used by Siemens Corporate Technology:
We think this
1. Technology Accelerator. Siemens began the Technology Accelerator 10 years ago
upon realizing that innovation didn’t always fit the company’s two main criteria of economic value and business need. Siemens Technology Accelerator acts as an incubator,
where separate businesses are set up outside of Siemens, even as the company still
holds some ownership in the technology. If the technology becomes more interesting
to Siemens, they can repurchase the company or its technology.
creativity and
will help with
out-of-the-box
thinking.”
– Dr. David Rapaport
20
2. Technology to Business. Siemens Technology to Business works with startup businesses, incubating and investing in innovative companies. If the technology is viable as a
business, Siemens will bring it back into the company. Startup efforts where the technology doesn’t match with Siemens’ goals follow the IPO route. Figure 2, below, shows
some of the startups Siemens has partnered with over the years. Sensys Networks’ traffic management sensors and systems, for example, meshed well with Siemens’ transportation business. Modumetal, which provides a laminated nanomaterial to handle
sustained stress on Siemens’ wind turbine blades, also become part of the company.
What we do:
What we deliver:
n Collaborations exploring use cases and
applications relevant to Siemens businesses
TTB
Projects
Startup
Projects
n Validate applicability of technology or
applications to Siemens business problems
Collaborations
External Innovation
Siemens Business Units
Figure 2
Siemens Technology to Business
Startups
Bridge the gap
between external
innovation and
internal needs
Healthcare
Energy
Industry
Transportation
TTB partners with startups to accelerate innovation with Siemens
3. Pictures of the Future. This part of open innovation looks at possible changes over the
next 10 years and the potential impact on Siemens’ core business. The program uses
input from economists, political science, technology developments, and research to envision a future beyond Siemens. The Picture of the Future for energy is being updated
to include renewable and distributed energy. However, the 2005 vision includes topics
that are relevant today: centralized power plants supplying a majority of the power
demand, CO2 sequestration, nanomaterials, and storage technologies.
4. Quickstarter. The Quickstarter program provides a form of internal crowd funding to
ideas generated by Siemens employees. Project ideas are voted on by a steering committee, and the most promising are provided seed funding. Projects that reach proof of
concept may continue to receive funding.
Innovation also comes from energy efficiency projects, which can have a high
and fast ROI.
In the energy sector, innovation includes energy efficiency, which can save money and resources. Kevin Ramsdell described the General Dynamics Mission Systems experience with
a new, less expensive way to cool labs and servers.
Labs and servers need to be cooled year-round. While new designed buildings are more
efficient, many of the General Dynamics Mission Systems operate out of naval plants built
during the 1940s, when the primary focus was the war effort rather than energy efficiency.
Eversource partnered with General Dynamics to provide air-chilled water to servers during
the cold New England months. When the outside air temperature is 32 degrees Fahrenheit or less, the 950-ton chiller shuts off, and the plate frame heat exchanger, which runs
through a building management system, turns on.
The project saw a payback on initial investment of 1.7 years. Initial projections predicted
that General Dynamics Mission Systems would save 1.7 million Kwh/year from 20 MW/year
electricity consumption. During the cold 2014-20215 winter the business saved almost three
billion Kwh. The success has led the business to look at other potential cost-saving measures.
“We projected we
were going to
save 1.7 million
Kwh. Because of
the harsh winter
conditions, we
saved almost 3
billion Kwh.”
– Kevin Ramsdell
21
Private equity funding plays a key role in developing energy technology
innovations.
EIF (Energy Investors Fund, now part of Ares Management) is one of the oldest private
equity fund management groups dedicated to energy. Over the past 25 years, EIF has
supported more than 7,500 MW of greenfield projects.
EIF focuses on electricity, specifically power generation, transmission, and midstream
energy infrastructure projects (Figure 3). EIF would like to be more involved in renewable
power, but finds it difficult to participate since its organizations and structure make it difficult to capture tax credits associated with the industry.
“We have followed
the market . . .
and tried to be, as
much as we can,
flexible to deploy
dollars.”
– Lucas Missong
Primary Investment Sectors
Ares EIF creates value through its operational expertise and development and construction
capabilities within the power generation and midstream sectors of the energy value chain
Figure 3
EIF Primary Investment Sectors
Power Generation
• Conventional power generation such as natural
gas, coal, and waste coal
• Renewable power generation such as landfill
gas, hydro, biomass, wind, and solar
“Ten years ago, our
portfolio looked
very different; it
Transmission
• Independent, point-to-point transmission
• Regulated electric transmission
was mostly coal
plants.”
Midstream Energy
Infrastructure
• Natural gas and liquids transportation
• Natural gas gatherings systems, processing,
and treatment
• Liquefied natural gas (LNG) and solids/gas-toliquids projects
– Lucas Missong
As coal-fired plants are retired on a large scale, the U.S. power market is moving in new
directions, providing new investment opportunities.
Missong cautioned that coal will still remain a large part of new and future power generation, although the percentage will decline. Missong noted that there is just one coal plant
left in New England, and feels that New England must come up with the right strategy to
assure an adequate supply of gas.
The energy markets are providing a number of investment opportunities. The shale gas
revolution, which has made the United States the single largest producer of natural gas,
requires $640 billion of infrastructure investments to support the Marcellus and Utica new
gas developments. In addition, forced and cost-driven retirement of power plans requires
more than $100 billion just to maintain the existing megawatts in the market.
Discussion
After the panel presentation, the audience raised several key areas of discussion:
Government policies. Procurement and contracting are often create big hurdles for
innovation. Contracting is slow and onerous, and the cycle time for government project approval is lengthy. Faster government contracting and approval processes might
increase private investment in research.
“We see an
abundance
of investment
opportunities
based on where
the market is,
based on the
aging generation
fleet.”
– Lucas Missong
22
Coal’s global presence. Coal still remains a major source of energy in China, Europe,
and India. Although China is the fastest growing global market for energy technologies—they are building nuclear, solar, and wind generation plants faster than anyone
else in the world—the country has access to a significant amount of coal. If these countries choose to burn coal without carbon sequestration, it will significantly impact the
climate. Professor Bunn was skeptical, believing it will be hard to avoid huge climate
change and that the planet could be in trouble.
Financing energy innovation. The shale gas revolution was funded, in part, by a
charge on gas pipelines; not through appropriations by Congress. A larger scale energy
innovation fund could finance additional U.S. energy innovations. This level of funding
is required to compete with countries like China, which are willing to fund and make
big bets on innovative energy technologies.
Nuclear technology. Professor Bunn sees nuclear energy as a necessary solution to
avoid a climate catastrophe. China continues to consider nuclear energy generation
and is looking at new technologies, such as a pebble bed/molten salt reactor that many
feel in not susceptible to a meltdown. These types of new nuclear technologies could
come the in the latter half of the century, however until 2050, nuclear power generation
is likely to come from current designs and existing reactors.
Energy efficiency. Innovations that yield greater energy efficiency will play a big role
in the energy markets. Businesses will see the benefits of behavioral changes, such
as turning off lights or air conditioners. Software-based decision support systems will
educate individuals on the cost of energy, which also changes behavior. Energy companies can work with businesses—as Eversource did with General Dynamics—to provide
innovative energy efficiency solutions that result in significant savings.
23
State and Regional Energy Policy
New England Energy Policy in the 21st Century
Moderator: Henry Lee, Jasmin M. Jaidah Family Director of the Environment and Natural Resources Program, Harvard’s
John F. Kennedy School of Government
Panelists: Matthew A. Beaton, Secretary, Executive Office of Energy and Environmental Affairs; Mark Kalpin, New
England Council Energy and Environment, Partner, Wilmer Hale; Jonathan Raab, Convener and Moderator, New England
Restructuring Roundtable; and Eric Wilkinson, Senior External Affairs Representative, ISO New England
Overview
New England’s energy sector faces significant challenges. New England’s location is a
challenge, as the region is at the end of the pipeline. The region has high energy prices,
price volatility, an aging infrastructure, a lack of capacity, and a slow rate of bringing new
capacity online.
But historically, Massachusetts and New England have been innovators in developing policies and collaborations to address the challenges faced. Policies have improved demand
management, energy efficiency, and innovation. New policies are needed to address
challenges of today’s high and volatile prices, constrained capacity, and climate change.
Strategies and plans need to be developed and implemented effectively to address the
real challenges of the region.
Context
The panelists summarized major challenges facing New England’s energy industry and
offered some policy recommendations.
Key Takeaways
“One of the most
impactful things
New England faces multiple energy-related challenges.
that we can do
Moderator Henry Lee summarized many of the challenges the energy sector faces in the
region. Major challenges include the region’s location, carbon dependency which can have
a catastrophic impact on climate change, the cost of decreasing this dependency, and the
need to change institutions and modernize the infrastructure.
is address the
Massachusetts’ state government is focusing on reducing and stabilizing
energy costs, clean energy, and grid modernization.
Massachusetts is a leader in energy efficiency and the clean energy technology sector.
Still, Secretary of Energy and Environmental Affairs Matthew Beaton said the state faces
a number of challenges, including reducing and stabilizing the rising cost of energy for
consumers, continuing the commitment to clean energy, and developing a safe, reliable,
and resilient energy infrastructure.
Natural gas pipelines play a key role in keeping down the rising cost of energy for consumers. The current gas infrastructure doesn’t meet regional demand during winter peak
consumption times, which impacts natural gas and electric prices. Recognizing the economic benefits from expansion of natural gas is a key energy initiative for Massachusetts
under Governor Charlie Baker’s administration.
high cost of
electricity and
get gas capacity
into the region.
This will help
us stabilize and
provide enough
gas to the area,
especially during
peak demand.”
– Matthew Beaton
24
The state also remains committed to a clean energy future that continues its excellence
in energy efficiency efforts and encourages the development of the renewable market.
Massachusetts wants a diversified renewable energy portfolio that allows competitive prices while meeting the goals of the Global Warming Solutions Act. Incentives have helped
expand the solar market in Massachusetts; Secretary Beaton would like these incentives
adjusted so that solar power becomes less expensive. He would also like the state to
consider adding Canadian hydroelectric power to Massachusetts’ renewable portfolio,
although this means overcoming current transmission challenges.
In addition, grid modernization, that supports a more resilient electric grid, is a top priority.
New England needs to maintain its position on the forefront of energy policy
innovation.
“We’ve had great
successes in
certain areas, and
now we need to
start looking at
what’s in the near
future.”
– Matthew Beaton
New England has been an energy policy innovator for several decades. Jonathan Raab
shared a timeline of energy and climate policy development in New England (Figure 1).
Figure 1: New England Energy & Climate Policy Development
Year
Milestone
Detail
Comment
1998
DSM (Demand Side
Management)
Collaborative
Energy efficiency project in Connecticut, Massachusetts, and Rhode Island that essentially zeroed
out electricity load growth.
A big success in managing
demand. Today 4 of 6 states in
New England are ranked in the
top 10 national in demand side
management.
Mid1990s
New England
Electric Restructuring
Roundtable
With the exception of Vermont, all New England
states restructured the electricity industry. This
roundtable talked about the issues surrounding
the restructuring.
Helped increase competition in
the electricity market.
Mid1990s
New England Disclosure
Project
This forum developed a process to label with environmental and other factors electricity from every
New England power plant so it could be tracked in
secondary markets.
Was a major innovation nationally.
1999
RPS (Renewable
Portfolio Standard)
Massachusetts implemented its first regulation
around renewable energy production requirements. This was one of numerous solar-related
policies that started in the late 1990s.
Several other states followed
Massachusetts.
2001
New England
Governors/Eastern
Canadian Premiers
greenhouse gas targets
New England states and Eastern Canadian
provinces worked together to come up with
greenhouse gas (GHG) emissions targets for 2020
and 2050.
2001
Greenhouse Gas Plans
Individual New England states—Rhode Island,
Connecticut, Maine, and Vermont—developed
early plans to meet GHG targets.
2003
NEDRI (New England
Demand Response
Initiative)
New England was the first region to gather stakeholders and develop a comprehensive demand response program for wholesale and retail markets.
Since then, all regions of the
country have implemented similar
programs.
2004
RGGI (Regional Greenhouse Gas Initiative)
New England along with several mid-Atlantic
states developed a mandatory, market-based
cap & trade system for the electricity industry to
reduce GHG.
This is a major policy innovation,
with similarities to EU policy.
2009
Clean Fuel and Climate
Plan
A next-generation climate plan developed for
Massachusetts and New Hampshire.
This is the next generation of the
Global Warming Solutions Act &
Clean Communities Act.
2012
Grid Modernization
Massachusetts opened a grid modernization
docket, which could lead to additional industry
restructuring.
25
Despite innovation over the past several decades, there remain many energy policy challenges facing New England. Although GHG emissions have been a target policy area since
2001, New England and the rest of the country need to figure out how to reduce greenhouse gas emissions not just by the 20% to 25% reduction goal set for 2020, but by the
2050 target of 75% to 80%. States have been focused on 2020 goals but haven’t begun to
consider the 2050 goals.
Raab agreed with Secretary Beaton that the region needs figure out how the gas transmission infrastructure will meet peak winter demands and how we will pay for this development. The mix of liquefied natural gas (LNG) and pipeline gas also needs to be considered
when looking at meeting demand needs.
Raab also believes that smart rate design, including bi-directional time varying rates, can
be used as an incentive for retail customers to use distributed energy resources. This will
provide the right price signals to customers and encourage use of solar power, electric
vehicles, and storage.
Price volatility and aging infrastructure are among the key energy challenges
facing the region.
The New England Council’s Energy and Environment Committee has been a consistent
advocate for a clean, reliable, secure, and economic supply of energy to the region. The
council—an alliance of business, academic, and health institutions in the six New England
states—promotes economic growth and a high quality of life for the region, representing
New England’s interest in Washington D.C.
High prices are a problem in New England, but Mark Kalpin also sees price volatility for
natural gas and electricity as a main challenge to the region. Fluctuating natural gas and
electricity prices make it difficult to come up with an economic plan as there is no way to
accurately predict energy costs.
The energy infrastructure is old and inadequate. Refurbishing it is complicated by the difficulty of siting new projects around New England, whether they are wind, solar, LNG, or
other energy sources. Kalpin recommends a more streamlined siting process.
The government can be both a help and a hindrance when it comes to progress. The
government has been a key driving force for clean energy technologies, energy efficiency,
and addressing climate change targets. But, there have been occasions where government
involvement has led to unintended consequences. Government involvement should be
considered carefully to ensure it sends the right signals to the competitive marketplace.
State energy policies have an impact on grid operation and planning.
Renewable resources and energy efficiency have been trending upwards in New England,
driven in part by state energy policies. Eric Wilkinson said that ISO New England, the
independent system operator managing the electricity market for the six New England
states—a 30,000 MW capacity system—has seen positive results in wind, solar, and energy
efficiency.
As Figure 2 shows, New England has 800 MW of wind operating today. There are more
than 4,000 MW of wind resources in the interconnected queue of companies that have
asked to connect to the ISO’s wholesale grid, which the ISO manages.
“None of the
states have really
touched the more
complicated
process of
getting us to
75% to 80% GHG
reduction. It’s
going to look very
different than
how we get to
2020.”
– Jonathan Raab
“Price volatility
hurts businesses
in the region. High
is bad, but high,
low, high, low is
worse because
you can’t really
plan at all.”
– Mark Kalpin
“No offense to the
Secretary, but
it’s really hard
to site things in
Massachusetts
and New England.”
– Mark Kalpin
26
Renewable and EE Resources are Trending Up
Wind
Solar
(MW)
Energy Efficiency
(MW)
(MW)
4,000
3,600
Figure 2
Renewable and Energy Efficiency
Resources are Trending Up
2,400
1,500
900
800
Existing
Proposed
PV thru 2014
Nameplate capacity of existing wind resources
and proposals in the ISO-NE Generator
Interconnection Queue; megawatts (MW).
PV in 2024
2015 ISO-NE Solar PV Forecast, nameplate
capacity, based on state policies.
EE thru 2014
EE in 2024
2015 CELT Report, EE through 2014 includes EE
resources participating in the Forward Capacity
Market (FCM). EE in 2024 includes an ISO-NE
forecast of incremental EE beyond the FCM.
Solar is also trending upwards. At the end of 2014 there were 900 MW of solar PV (photovoltaics) on the New England system. The first quarter 2015 survey has shown growth to
1,000 MW of solar PV. Wilkinson expects even more solar to come online—forecasted to
reach 2,400 MW by 2024— which in part is driven by Massachusetts’ goal of 1,600 MW of
solar power by 2020.
ISO New England also has more than 1,500 MW of energy efficiency resources on the
system today and expects that to grow to 3,600 by 2024. Energy efficiency has the largest
impact on peak demand and annual load growth, reducing the rate of growth in energy
demand substantially. Along with solar, energy efficiency is expected to flatten annual
Energy
Use
energyAnnual
load growth
10 years.
With and Without Energy Efficiency and Solar Photovoltaics (PV)
155,000
GWh
Gross load
Minus PV
150,000
Figure 3
Annual Energy Use
145,000
“Energy efficiency
and solar will
essentially flatten
energy load
growth going out
10 years into the
140,000
future.”
135,000
– Eric Wilkinson
130,000
Minus PV, EE
125,000
l
The gross load
forecast (projected
regional energy use)
l
The gross load forecast minus
forecasted solar photovoltaic (PV)
resources
l The gross load forecast minus forecasted
PV, minus energy-efficiency (EE) resources in
the Forward Capacity Market (FCM) 2015–
2018 and forecasted EE 2019–2024
These forecasts, which take into account the impact of state policies and mandates, are
used by ISO New England’s transmission grid planners to identify transmission and resource needs throughout the region. The future electrical grid is planned around these
forecasts.
Siting projects is a problem across the region, with no clear resolution.
New England is considered the hardest region in the United States in which to site projects, outside of California. This can slow down projects significantly. Lee challenged the
panel for ideas on how to change and accelerate the siting process.
An open process that allows the market to choose and site projects could help move
them along quickly, but legal challenges will still present major hurdles. Secretary Beaton
27
suggested that an open and transparent process that allows maximum public input could
reduce the time spent in courts during the siting process.
Kalpin agreed that litigation often gets in the way, but he believes that a process similar to
the Federal Energy Regulatory Commission (FERC) could speed up siting. FERC provides
a list of all the components that developers must have in place before filing, ensuring they
have thought through the details of the project before they submit a plan.
Raab’s team recently helped New Hampshire review and change the state’s siting process
following several controversial projects. He suggested that a clear regulatory process,
involving stakeholders, and a well-balanced and clear procedure can improve the siting
processes. A suggested strategy for Massachusetts and other states is to put all permitting into one agency.
Reducing carbon emissions by 80% by 2050 requires more than just an energy
industry focus.
The states in the region agreed on a target of 80% reduction in carbon emissions by 2050. That
goal sounds great, but how it will be achieved is far from clear. California, which has perhaps the
most aggressive low carbon program in the country, has only reduced carbon emissions by 1.4%.
In order for states to reduce emissions by 80% by 2050, the focus needs to fall beyond the
energy industry, and encompass the transportation and home heating industry. Raab cited
analyses which determined that a 75% to 80% carbon emissions reduction could be accomplished by electrifying both the vehicle fleet and home heating, along with renewables
and fast-start gas-fired generation. This approach could be costly, however, although Raab
was hopeful prices would come down by 2050.
ISO New England is already seeing significant decreases in electric generation sector
emissions. Between 2001 and 2013, Wilkinson said nitrogen emissions decreased 74%, sulfur dioxide emissions decreased 93%, and carbon dioxide emissions dropped 28%, mainly
due to a fuel switch from coal to oil and gas.
Secretary Beaton advocated for a diversified approach, called for deploying existing technologies that will help reduce emissions, developing new technologies, and focusing on
the transportation sector.
Discussion
Other topics discussed included:
Renewables will remain. Secretary Beaton does not believe that natural gas will push
out renewables. The industry should focus on energy efficiency and reducing demand.
The Secretary wants government to continue to provide incentives for renewable energy use, such as wind and solar, and readjust incentives as markets become established
and new technologies become available at lower cost.
Government’s role. One attendee argued that the government needs to play a role in
establishing goals, standards, and rules to ensure greater predictability in the market.
The market should pick winners and losers.
Hydro. There is a large amount of hydroelectric power in Canada that is available for
export to the United States. Raab said the region needs to look at this source closely,
as it can help New England states meet climate goals and stabilize prices, even though
it doesn’t meet the renewable portfolio standards.
28
Perlmutter Institute for
Global Business Leadership
CONTACT US
Brandeis
International
Business
school
415 South Street
Waltham, MA 02454-9110
781-736-8351
Centers and Initiatives/External
Relations
brandeis.edu/global

Energy Whitepaper 2015 - The Massachusetts Business Roundtable

Transcription

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