New England electric prices increase due to natural gas pricing, again

Increased energy costs in New England in fall 2022 were a result of higher natural gas prices, according to a report by the regional wholesale electricity market monitor. The finding continues a trend documented throughout 2021, through which high natural gas prices drive higher prices in electric energy markets.

ISO New England Inc. is the regional transmission organization responsible for operating New England's wholesale electricity markets. The ISO's Internal Market Monitor (IMM) department regularly evaluates the markets and issues reports, including quarterly and annual assessments.

Each of the market monitor's four most recent quarterly reports has noted year-over-year increases in the cost of wholesale electricity in New England -- and says the cost of natural gas explains the electricity price hikes:

Winter 2022: High natural gas prices drove an 85% year-over-year increase in the region’s wholesale market cost of electricity for the winter of 2022 ...

Spring 2022: Rising natural gas prices continued to drive up the region’s wholesale market cost of electricity in the spring of 2022, resulting in a 78% increase over the spring of 2021 ...

Summer 2022: The cost of electricity on New England’s wholesale markets in the summer of 2022 was 79% higher than in the summer of 2021 ...

Fall 2022: High natural gas prices continued to drive increases in the cost of wholesale electricity in New England in the fall of 2022 ...

The market monitor's reports show that natural gas pricing is responsible for wholesale electricity price increases, providing explanations like this one for fall 2022, "Energy market costs totaled $1.85 billion, up 13% from $1.64 billion last fall. Driving the increase was the cost of natural gas, which rose 18% compared to the fall of 2021."

The IMM's fall 2022 report documents natural gas pricing as a key driver of electricity prices:

Natural gas prices, which saw record lows in 2020 and record highs in 2021 and 2022, continued to be a key driver of energy prices. The Fall 2020 natural gas price ($1.93/MMBtu) was the lowest fall price since 2001, while the Fall 2022 natural gas price ($6.00/MMbtu) was the highest fall price since Fall 2008.

2022's year-over-year price increases follow a 2021 in which New England’s average wholesale energy prices rose to their highest levels in seven years in 2021. According to the 2021 annual report by ISO-NE's IMM, 2021's high prices too were caused by natural gas pricing:

High natural gas prices drove higher prices in the energy markets, leading to a 38% year-over-year increase in the total wholesale market cost of electricity, which rose from $8.1 billion in 2020 to $11.2 billion last year. The increase followed record-low energy prices recorded during the first months of the COVID-19 pandemic.

In addition to playing a significant role in setting the price of electricity in the regional energy market, natural gas also plays a major roles in regional electric reliability, according to ISO-NE:

During the last few years, inadequate infrastructure to transport natural gas has at times affected the ability of natural-gas-fired plants to get the fuel they need to perform. This energy-security risk has become a pressing concern in New England, considering the major role natural-gas-fired generation plays in keeping the lights on and setting prices for wholesale electricity.

According to ISO-NE's resource mix documentation, in 2022 natural gas provided 52% of wholesale electric generation in New England, and supplied the energy serving 45% of New England load.

Heat pumps in Maine give lowest-cost heat, per state energy office

Heat pumps in Maine heated homes and other buildings at a lower per-unit cost compared to furnaces fueled by natural gas, oil, or propane, or electric baseboard heating, according to statewide average data recently reported by the state energy office. 

Maine's state energy office describes the state as having "long been a national outlier for reliance on oil". According to the U.S. Energy Information Administration, "Three-fifths of Maine's households use fuel oil as their primary energy source for home heating, a larger share than any other state." EIA data for 2020 shows that Maine consumed 31 million barrels of petroleum for all uses, with residential heating accounting for 7,155,000 of these barrels at a cost of over $652 million.

Heat pumps provide energy efficient heating and cooling to Maine’s homes and businesses and reduce the state’s high reliance on fossil fuels for heating. State law and Maine's Climate Action Plan establish a goal for the installation of 100,000 new heat pumps by 2025, with 15,000 new heat pumps being provided to income-eligible households. 

Efficiency Maine Trust, the state's quasi-governmental energy efficiency organization, offers rebates for heat pump installations for residential, low-income, and commercial customers. According to Efficiency Maine Trust, "Tens of thousands of heat pumps have been installed in homes and businesses across Maine. They are the most popular heating system across all of Efficiency Maine’s rebates because they offer highly efficient heating, air conditioning, and dehumidification."

A legislative resolve enacted in 2022 directed the Governor's Energy Office to monitor, in coordination with the Office of the Public Advocate and the Public Utilities Commission, factors that directly affect energy supply and costs in the service territory of the northern Maine independent system administrator and in other rural or geographically isolated communities in the State, including, but not limited to, electric grid reliability, availability and costs of electric generation resources, electricity rates and heating fuel supplies and costs.

The Governor's Energy Office released a report in February 2023 addressing the resolve. Regarding heat pumps, the report notes:

Heat pumps provide energy efficient heating and cooling to Maine’s homes and businesses in addition to decreasing the state’s high reliance on fossil fuels for heating. The benefits of heat pump adoption and weatherization not only include lower prices as compared to other common heating systems (which in Maine are predominately delivered fuel), but also climate benefits including reduced greenhouse gas emissions and increased resilience to fossil fuel price swings. 

The report includes a graph presenting a price comparison of common heating systems in Maine, from 2019 through 2021, using statewide average data. The graph shows that heat pumps were the lowest-cost source of heat over the time period, relative to other typical heating systems such as furnaces fueled by natural gas, oil, or propane, or electric baseboard heating:

In addition, Maine utility Central Maine Power Company has offered a "Seasonal Heat Pump Rate" pilot program limited to the first 5,000 participants. The pilot rate differs from the utility's standard tariffed rates, but has potential to provide significant savings to heat pump users whose usage characteristics align with the rate's incentives.

Maine PUC RFP for Wood-fired CHP

Maine utility regulators are soliciting proposals from qualifying combined heat and power projects that use wood fuel to generate electric heat and power for industrial or space heating purposes to sell energy, capacity or renewable energy credits (RECs) to Maine's investor-owned transmission and distribution utilities. 

Cogeneration, or combined heat and power (CHP), involves the generation of electricity in ways that also enable the productive use of heat from the generation process. Cogeneration can provide significant efficiency advantages compared to standalone electric power generation using thermal fuels, because typical standalone electric power plants cannot capture as much of their fuels' energy content as can CHP plants.

A law enacted by the Maine legislature in 2022 requires the state's Public Utilities Commission to establish a wood-fired CHP program. The law, An Act To Establish a Wood-fired Combined Heat and Power Program. P.L. 2021, Chapter 604, creates opportunities for qualifying combined heat and power projects to seek Commission-ordered long-term contracts to sell electricity or RECs to Maine's investor-owned transmission and distribution utilities.

To implement the Act, the Commission has issued a Request for Proposals in Docket No. 2022-00342. To be a qualifying combined heat and power project for this RFP, a generation facility must meet the requirements of Section 3 of last year’s new law, including the following:

To participate in this RFP, a project must meet the eligibility requirements specified in the Act. Specifically, a project must be a combined heat and power project, which is defined as a facility that uses wood fuel to generate electric heat and power that is used for industrial or space heating purposes. Wood fuel is defined as biomass derived from: (1) forest products manufacturing residuals, including, but not limited to, mill chips, sawdust, bark, shavings and fines; (2) harvest residues, including trees or portions of harvested trees that are too small or of too poor quality to be used for wood products; or (3) downed trees from weather events and natural disasters, nonhazardous landscape or right-of-way trimmings, and plant material removed for purposes of invasive species control.

The Act and the RFP impose additional requirements, including that qualifying projects must be connected to the Maine electric grid; have an in-service date after November 1, 2022; satisfy the limits on net generating capacity of no less than 3 MW and no more than 10 MW in any hour; be highly efficient, as determined by the Commission; and not be a participant in net energy billing under Maine law. 

Under the RFP, bidders selected by the Commission will enter into contract(s), with one or both of Maine's investor-owned utilities, for a term of up to 20 years. The RFP prescribes that the Commission will evaluate proposals based upon the requirements and objectives stated in the Act and the RFP, which include 30% for efficiency and heat utilization, 40% for total cost, and 30% for certain other policy-based factors (like alignment with waste diversion and renewable policies, economic impact including jobs, net greenhouse gas emissions, location and local electric demand, and alignment with load patterns expected from beneficial electrification).

According to the RFP, responsive proposals must be submitted to the Commission by 11:59 PM on March 3, 2023.

Where did New England's electricity come from in 2022?

Natural gas was the source of about 45 percent of the electricity consumed on the New England grid in 2022, according to regional wholesale market operator ISO New England, Inc., and nuclear power provided another 23 percent. Imported electricity accounted for about 14 percent. 

ISO-NE is the federally designated regional transmission organization responsible for the electric transmission system and wholesale electricity market covering nearly all of the New England region. It describes itself as "the independent, not-for-profit corporation responsible for keeping electricity flowing across the six New England states and ensuring that the region has reliable, competitively priced wholesale electricity today and into the future."

The grid operator periodically releases data on the portfolio of generating resources providing power to the wholesale market. Its most recent summary covers the 2022 calendar year. According to that summary of preliminary data, total production for the year (net energy for load, or NEL), amounted to 118,878 gigawatt-hours (GWh).

Of this total amount of electricity consumed from the New England electric grid in 2022, in-region electric generation accounted for 103,877 GWh in 2022, or about 87 percent. Imports from neighboring control areas like Quebec, New Brunswick, and New York accounted for about 14 percent. ISO-NE's analysis then deducts about 1 percent of NEL to account for electricity consumed in pumping water uphill for use in pumped storage generation facilities.

Focusing on in-region generation in 2022, ISO-NE's data shows the following resource contributions to net energy load:

In commentary, ISO-NE noted that solar power production increased by about a third from 2021 to 2022, reaching 3 percent of net energy for load, and nearly tying wind power; meanwhile, the grid operator noted that oil's contribution increased year over year, "reflecting rising prices for the region’s main energy fuel, natural gas, that made oil more economical at certain times of the year."