Natural gas pricing drives New England's electricity costs

Two factors are the main drivers of wholesale electricity prices in New England, according to the region's grid operator: the cost of natural gas and other fuels used to generate electricity, and the level of consumer demand for power.

Fuel costs are a key component of the cost of electricity, and natural gas is the "predominant fuel in New England", used to generate 52% of the power produced in 2022 by New England’s power plants. According to ISO New England Inc., the regional transmission organization, natural gas-fired power plants usually set the price of wholesale electricity in New England.

As a result, the grid operator says that "average wholesale electricity prices are closely linked to natural gas prices." The chart below, prepared by ISO-NE, shows the close correlation between wholesale electricity and natural gas prices between for the past two decades:

ISO-NE reports that demand for electricity is the second main driver of the region's wholesale electricity prices, and that demand "is driven primarily by weather, as well as economic factors." The extent to which consumers rely on electricity-powered heating and air conditioning equipment means that peak demand is driven by weather. 

While New England's original electric system reached peak demand in winter, the region shifted to summer-peaking in the early 1990s due to increased air conditioner use and decreased reliance electric heating. The grid operator's records as of mid-2023 show that the all-time high winter peak of 22,818 MW occurred during a cold snap in January 2004, and the all-time peak demand of 28,130 MW occurred during an August 2006 heat wave. 

ISO-NE projects future growth in consumer demand for electricity and a shift back to a winter-peaking system by 2035, as beneficial electrification of the region's heating and transportation sectors add heat pumps and electric vehicles to the grid.

U.S.-Canada energy trade reached record-high value in 2022

Energy trade between the United States and Canada reached record high levels of value in 2022, according to the U.S. Energy Information Administration.

EIA tracks and reports statistics concerning energy matters, including volumes and values of international trade. According to EIA, high energy prices contributed to a total of $190 billion in energy trade between the U.S. and Canada in 2022, when adjusted for inflation.

EIA tracks four main types of energy commodity transacted between the U.S. and Canada: crude oil, other petroleum products, natural gas, and electricity. In recent years, crude oil has represented the largest fraction of these countries' energy trade on a value basis, followed in turn by the other commodities listed above.

The value of energy trade is driven by a combination of factors, including the volumes of energy imported and exported, as well as the prices for those transactions. EIA reports that volumes of energy trade between these two countries were nearly unchanged between 2021 and 2022. 

Meanwhile, the value of energy trade increased by 41% in 2022. According to EIA:

• The U.S. imported a greater value of trade from Canada ($156.3 billion, inflation-adjusted) than it exported to its neighbor ($33.8 billion, inflation-adjusted). 
• U.S. crude oil imports in 2022 averaged 3.7 million barrels per day by volume, while U.S. crude exports to Canada averaged 305,000 barrels per day. 
• Natural gas imports from Canada averaged 7.6 billion cubic feet per day (Bcf/d), while exports to Canada averaged 2.5 Bcf/d. 
• Petroleum product trade was closer to even, with 580,000 barrels per day imported and 524,000 barrels per day exported. 

Maine considers distributed generation interconnection reforms

The Maine legislature has enacted a law designed to reform the state's procedures for interconnecting solar projects and other forms of distributed generation resources to the electric grid. The law, An Act to Provide Maine Ratepayers with Equitable Access to Interconnection of Distributed Generation Resources, requires the Public Utilities Commission to appoint an "interconnection ombudsman". The law also requires the PUC to align its interconnection rules with best practices and to prioritize interconnection of solar resources and energy storage systems used to serve on-site load.

Interconnection is an essential component of distributed generation project development and operation. Policies enacted since 2019 have led to a flood of interconnection requests by project developers, seeking access to the grid. Each request must be studied, sequentially, to identify what grid upgrades and interconnection facilities must be built for safe and reliable operation. Large projects and those connected to the interstate transmission grid generally interconnect under federally jurisdictional procedures, like the interconnection procedures adopted by regional grid operator ISO New England. 

Smaller distributed generation projects in Maine generally use the state-jurisdictional interconnection process, which operates under the PUC's Chapter 324 rule. The rule specifies rights and responsibilities of both the project developer as interconnection customer and the utility. The recent flood of interconnection requests has caused project developers to complain about lengthy timelines, inflexible procedures, and missed deadlines by utilities.

To address these concerns, the Maine legislature recently enacted the distributed generation interconnection reform act, Public Laws of 2023 chapter 307. Introduced as LD 327, the law as enacted requires the PUC to appoint an interconnection ombudsman to assist people seeking state-jurisdictional interconnection of solar resources and energy storage systems. The interconnection ombudsman's duties include tracking interconnection disputes, facilitating their efficient and fair resolution, reviewing utility policies to assess opportunities to reduce disputes, convening stakeholder groups, and reporting. The position must be funded by interconnection fees or sources other than general ratepayer funds, and the PUC must make a good faith effort to appoint the ombudsman within 12 months of the law's effective date.

The law also requires the PUC to adopt interconnection rules that prioritize interconnection of solar resources and energy storage systems owned by customers of investor-owned transmission and distribution utilities and used to serve an on-site load. It also requires the PUC to convene an interconnection working group. 

Maine enacts law to develop clean energy on PFAS-contaminated lands

The Maine legislature has taken a significant step to promote the economic reuse of agricultural land contaminated by perfluoroalkyl and polyfluoroalkyl substances (PFAS) through the development of renewable energy projects. A newly enacted law will require state regulators to solicit proposals for renewable energy projects, with a primary preference given to projects located on PFAS-contaminated agricultural land. The law could help Maine address challenges arising from farmland contamination with PFAS, while promoting renewable energy development. 

Importantly, the law represents a new wave of Maine energy contracting policy, because it requires the procurement of both energy and renewable energy credits (RECs), rather than one or the other. By mandating the acquisition of both energy and RECs, the law has potential to enable Maine consumers to truly say they consumed renewable power specifically from these projects, as a result of these contracts.

An Act to Promote Economic Reuse of Contaminated Land Through Clean Energy Development was introduced as LD 1591, a bipartisan bill sponsored by Senator Stacy Brenner with co-sponsors including Representative Zeigler, Senators Bennett, Black, Carney, LaFountain, and Pouliot, and Representatives Boyle, Campbell, and Hall. In a statement, Senator Brenner noted that PFAS chemicals have been found on at least 56 Maine farms in high amounts, limiting or effectively ending their agricultural production. 

In response, the sponsors proposed a bill that called for the Maine Public Utilities Commission to solicit proposals to sell power from renewable projects on contaminated agricultural lands. Following amendment by the Joint Standing Committee on Energy, Utilities and Technology, the law was enacted by the Maine legislature as Public Laws of 2023 chapter 321, and signed by Governor Mills on June 26, 2023. 

In its final form, the law requires the PUC to conduct one or more competitive solicitations for contracts for energy and renewable energy credits from new renewable energy projects. The law requires the PUC to direct Maine's investor-owned transmission and distribution utilities to enter into contracts to purchase power and RECs from selected projects. The law prescribes procurement of amounts equal to at least 5% of Maine's retail electricity sales in 2021, plus additional amounts to cover any unused contracting capacity under a previously enacted procurement law. 

The law requires the PUC to select only projects that will benefit ratepayers, to give primary preference to projects located on contaminated land, with secondary preference for projects that minimize use of forested land and uncontaminated farmland. Contracts can be for up to 20 years, or longer if the PUC finds this prudent. Projects combined with grid-connected energy storage systems are also eligible but must promise that the storage system will remain stationary and under the same ownership throughout the contract term. Combined projects must also submit a separate generation-only bid.

A critical distinction of this law is its explicit requirement that proposals and contracts include both "energy and renewable energy credits", rather than offering either/or options. RECs represent the environmental attributes associated with a given megawatt-hour of electric energy and are crucial for tracking renewable energy under Maine's renewable portfolio standard. The holder of a REC generally may make claims about their use of renewable electricity, which effectively uses up the REC. The same claims can't be made if the REC is sold separately to someone else. 

Other recent Maine contracting programs generally have not required the sale of both energy and RECs. Nearly all contracts awarded under these programs have been for energy and not for RECs. Project developers selling their energy under these Maine programs typically sell their RECs separately to buyers in southern New England states who will use the RECs for compliance with their own state's renewable energy laws. As a result, these other Maine contracting programs don't generally directly result in renewable energy supply to Maine consumers. 

By contrast, the recently enacted clean energy development on contaminated land act requires contracts to be for both energy and RECs. It requires the PUC to adopt a process to assign the procured RECs to a standard-offer service provider to satisfy its own renewable portfolio standard requirements. While the details of that process will be specified by rule, the law contemplates that the procured RECs will enable Maine consumers to claim they consumed renewable energy as a result of contracts awarded under this program, unlike some of Maine's other recent energy contracting programs.

Maine enacts Beneficial Electrification Policy Act

The Maine legislature has enacted a law promoting beneficial electrification. The Beneficial Electrification Policy Act, chapter 328 of the Public Laws of 2023, gives Maine new tools to reduce carbon emissions from the state's heating, transportation, and other sectors, by promoting electrification through heat pumps, electric vehicles, and other measures.

Maine law requires the state to achieve specified reductions in its statewide net and gross annual greenhouse gas emissions over time. Gross annual emissions must drop to at least 45% below the 1990 gross level by 2030, falling to at least 80% below the 1990 level by 2050. Net annual greenhouse gas emissions may not exceed zero from 2045 on.

Separately, Maine's renewable portfolio standard law includes both goals and mandates that increasing portions of retail sales electricity must come from renewable resources over time. Statutory goals include that 80% of retail sales electricity in the State will come from renewable resources by 2030, and 100% by 2050. Enforceable mandates already require retail suppliers to cover increasing percentages of their retail sales with renewable energy certificates (RECs) from various classes of resource; for 2023, the total RPS mandate percentage exceeds 50%, rising to 84% by 2030.

Maine has already largely decarbonized its electric power sector. According to the Maine Department of Environmental Protection, "Annual CO2 emissions from fossil fuel combustion in the electric power sector have decreased by 91 percent since they peaked in 2002 largely by replacing high carbon fuels with lower carbon energy sources, primarily natural gas and renewable sources."

Even though the electric sector has largely cleaned up its act, heating and transportation continue to account for the bulk of fossil fuel use in Maine and associated carbon emissions. Transportation alone accounted for 49 percent of Maine's CO2 emissions from fossil fuel combustion in 2019. Technologies like heat pumps and electric vehicles have potential to displace these fossil fuel uses, in ways that can reduce both carbon emissions and consumer costs -- a concept termed beneficial electrification.

Building on Maine's original beneficial electrification law enacted in 2019, the Beneficial Electrification Policy Act defines "beneficial electrification" as:

electrification of a technology or process that results in reduction in the use of a fossil fuel, including electrification of a technology or process that would otherwise require energy from a fossil fuel, and that provides a benefit to a utility, a ratepayer or the environment, without causing harm to utilities, ratepayers or the environment, by improving the efficiency of the electricity grid or reducing consumer costs or emissions, including carbon emissions.

Sponsored by Senator Nicole Grohoski, and co-sponsored by Representatives Steven Foster and Chris Kessler, the bipartisan An Act to Enact the Beneficial Electrification Policy Act was introduced in the 131st Maine Legislature as LD 1724. Following legislative debate, the bill was enacted into law and signed by Governor Janet Mills on June 26, 2023.

The new law includes several measures supporting beneficial electrification. It requires the Public Utilities Commission to advance beneficial electrification in order to achieve the emission reduction and renewable energy goals of the State, reduce energy costs to consumers and provide economic and climate benefits for all ratepayers. It also authorizes the Governor's Energy Office to petition the Public Utilities Commission to procure energy from renewable resources to achieve Maine's emission reduction and renewable energy goals and to meet reasonably expected growth in electric demand. According to the regional grid operator ISO New England, demand for power will increase by 23% over the next decade to account for increasing electrification of heating and transportation.

The law also requires the Efficiency Maine Trust to include a 3-year beneficial electrification plan for end uses of energy as part of the Trust's triennial planning process, including all beneficial electrification measures that are cost-effective and reliably reduce electricity rates over the life of the measures.

In addition to requiring the Public Utilities Commission to report annually on its activities under the new law, the Beneficial Electrification Policy Act also directs the Commission to conduct a study on how to cost-effectively provide consumer financing of beneficial electrification products, including products for energy efficiency, home or business energy storage, electric vehicle charging equipment and other distributed energy products. The law requires the study to include consideration of methods including, but not limited to, on-bill financing by standard-offer service providers or competitive electricity providers. It requires the Commission to report back to the legislative energy committee by January 5, 2024.

New England power plant air emissions increased in 2021

New England's power plants collectively emitted greater amounts of key air emissions in 2021 than in the year before, according to a report by the region's electric grid operator. Factors included the weather, decreases in power imported from outside the region, and increased reliance on coal and oil-fired generation.

The 2021 ISO New England Electric Generator Air Emissions Report provides "a comprehensive analysis of New England’s native electric generator air emissions (nitrogen oxides [NOX], sulfur dioxide [SO2], and carbon dioxide [CO2]), along with CO2 emissions associated with imported energy, and a review of relevant system conditions."

New England has significantly reduced the air emissions associated with its electric power sector over the past decades. According to the report, total average air emissions from "native generation" (in-region) have decreased overall during the 10-year span from 2012 through 2021: NOx by 39%, SO2 by 87%, and CO2 by 20%. The report credits the decline in emissions over this period to "shifts in the regional generation mix, with imports and wind generation offsetting decreases in coal-fired generation." 

Looking farther back to cover the 20-year span from 2001 through 2021, NOx emissions fell by 80%, SO2 emissions fell by 99%, and CO2 emissions fell by 41%. Summarizing these two decades of change, ISO-NE says, "The increased use of highly efficient natural-gas-fired generators, mandated use of lower-sulfur fuels, retirements of coal- and oil-fired generation, increasing amounts of wind and solar generation, and higher net energy imports have all contributed to the trend."

But on a year-over-year basis, emissions increased in 2021 relative to 2020 according to the grid operator. For native generation, NOx emissions grew by 2.9%, SO2 emissions grew by 12.2%, and CO2 grew by 7.8%. 

ISO-NE attributes the region's recent backsliding on emissions to several factors, including increased demand for native generation (due to a 20% reduction in imports), weather (warm summer, cold winter), and "the resource mix":

Coal- and oil-fired generation had year-over-year increases of 281% and 53%, respectively. Resources fueled by coal or oil produced more power than usual during colder weather in January and February 2021, and production by oil-fired resources also increased during hot weather in June and August. These resources, which have higher emission rates than plants fueled by natural gas, often contribute generation during peak energy demand periods in the summer, or when winter heating demand limits the availability of natural gas or drives up its price.

The grid operator expects continued growth in demand for electricity, as transportation and heating increasingly become powered by electricity.

New England electric demand projected to grow by electrifying heating and transportation

The operator of New England's electricity grid projects that demand for power will increase by 23% over the next 10 years "due to accelerating electrification of the heating and transportation sectors." State and federal policymakers are promoting "beneficial electrification", the replacement of carbon-emitting fossil fuel uses with lower-carbon-intensity electricity as a power source. The trend has potential to significantly decarbonize the region's transportation and heating sectors, which collectively emit many times more greenhouse gases than the region's electric power sector.

ISO New England's 2023–2032 Forecast Report of Capacity, Energy, Loads, and Transmission (CELT Report) presents the grid operator's perspective on the region's power system, including a long-term forecast for energy consumption and peak demand. To prepare the forecast, ISO-NE first develops a gross long-term forecast for electricity demand, based on factors including economic forecasts and weather data -- and increasingly on projections for the electricity needed to power electric vehicles and air-source heat pumps that are being added to the grid. ISO-NE then backs out its projection of energy efficiency and behind-the-meter solar photovoltaic production, to yield a net forecast.

According to the latest CELT report, gross annual electricity use is expected to grow by 2.4% annually over the 10-year period, while net annual use is expected to grow by 2.3% annually. EVs are expected to account for 13,961 GWh of grid demand in 2032, while heating electrification is expected to account for 7,334 GWh of demand that year. 

In terms of peak demand, ISO-NE expects significant growth in EV use, with transportation electrification is forecast to contribute 3,420 MW to the winter peak in 2032-2033. Heating electrification is forecast to contribute another 2,965 MW to the winter peak under average weather in 2032-2033, or 4,033 MW under colder-than-average weather. 

For comparison, in 2021 Maine's total net summer generating capacity was 5,026 MW, according to U.S. Energy Information Administration data. In other words, electrifying transportation and heating is projected to add more load to the region's grid than all of Maine currently consumes.