Atlantic Canada Opportunities Agency
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Atlantic Energy Gateway - Regional Clean and Renewable Energy Market Opportunities

Executive Summary

The Atlantic Canada Opportunities Agency (ACOA), in collaboration with the Federal and Atlantic Canadian Provincial Governments, retained Navigant Consulting Ltd. (Navigant) to conduct this Atlantic Energy Gateway (AEG) study to identify market opportunities within the international northeast region for Atlantic Canadian clean and renewable energy.  The purpose of the study is to review and summarize provincial and state clean and renewable energy policies, supporting clean and renewable energy consumption targets and mandated clean and renewable energy procurement policies for Atlantic Canada and New England. 

To assess the potential export opportunities for clean and renewable energy, Navigant analyzed the following factors: current and anticipated future regional market demand drivers, market barriers to the movement of clean and renewable energy within Atlantic Canada and New England, and regulatory issues and considerations.  The study also provides a summary of renewable portfolio standards (RPS), local content requirements, domestic production and consumption targets, emission reduction targets and associated environmental regulations, general market conditions and any policies or initiatives that may impact the supply or demand for clean and renewable generated electricity.  In addition to the above, Navigant also prepared a detailed overview of the New England power market to put the above factors in context with the market characteristic.

Based on the above identified factors, regulatory and market drivers, and the defining characteristics of the New England market, Navigant makes the following observations related to the opportunity for exports of clean and renewable energy to the New England power market.
  1. There are three distinct “markets” for clean and renewable energy in New England: 1) the New England energy market; 2) the New England capacity market; and 3) the various state Renewable Energy Credit (REC) markets.  Generally speaking, the energy market is accessible to any supplier that can physically deliver electricity into New England and, similarly, the New England capacity market is accessible to any supplier with a firm transmission path into New England.  The rules for the individual state REC markets vary from state to state depending on each state’s Renewable Portfolio Standard (RPS), particularly with respect to the type of renewable energy that is eligible to participate in the market.

  2. The New England energy market has a significant amount of combined cycle natural gas capacity.  Due to the discovery of unconventional gas resources, gas prices are low, and are projected to remain low for the foreseeable future.  This has resulted in natural gas being on the margin for over 70% of the time.  For example, with an average historic market average of 8,600 Btu/kWh and a natural gas price of $5/MMBtu, wholesale electricity market prices would be about $43/MWh (USD).

  3. The New England capacity market has a significant surplus of capacity and is projected to remain in surplus until the end of the decade.  This is the result of the implementation of a forward capacity market (FCM), and rules that support demand response resources competing against generation resources and imports to compete for a capacity supply obligation.  It is expected to result in capacity prices that are well below the cost of new entry (1)

  4. The investment required for complying with some or all of the forthcoming environmental regulations could make a number of plants candidates for retirement.  These plants include older steam coal, gas, oil units that are marginally economic and at risk of retirement given their limited operation. The removal of 3,500 MW of such capacity from the market would, as ISO-NE has indicated, eliminate much of the surplus capacity.

  5. Current RPS policies provide incentives for renewable generation. There are no specific requirements, policies, or incentives for clean energy (e.g., large hydro and nuclear power), and the region does not distinguish between clean resources and other resources, such as natural gas plants, that meet the federal and state emission regulations (2). The Production Tax Credit, if extended, would provide a competitive disadvantage to the AEG initiative.

  6. New England’s Load Serving Entities are currently relying on a mix of renewable resources located in New England, New York and Canada to meet their RPS requirements.  New England is not expected to have enough “local” renewable resources to meet future RPS requirements.  New England will need to import renewable energy certificates (RECs) to meet its future RPS requirements.

  7. Large hydro cannot participate in the current RPS programs.  There have been proposed changes to the RPS programs in Maine, Connecticut, and New Hampshire for allowing large hydroelectric generators to qualify.  However, these legislative changes have either died due to unresolved differences or have been tabled for later discussion (3).   Maine currently allows hydroelectric resources of up to 100 MW to participate in its RPS Program and Vermont allows hydroelectric resources of up to 200 MW to qualify in its SPEED Program.

  8. There have been few long-term contracts offered to renewable energy projects in New England, and no long-term contracts offered to projects located outside of New England.  If regional project development stalls and demand exceeds supply, long-term contracts could be offered to projects outside of New England to ensure compliance.

  9. Maine is currently export constrained, with an abundance of natural gas-fired generation capacity.  This has led to low energy prices, lower capacity prices, and reliability issues.  The proposed transmission projects are being developed to address reliability concerns, and do not explicitly address the export constraints between New Brunswick and Maine or between Maine and the rest of New England.

  10. Through various transmission service, access and rights agreements with Emera, Nalcor will have access through Nova Scotia and New Brunswick into the New England markets upon completion of the Muskrat Falls hydroelectric and associated HVdc transmission (Labrador-Island Link and Maritime Link) projects.  In combination with the transmission access it currently has through Quebec, these agreements will allow Nalcor to sell any available energy and capacity into the New England energy market that is not utilized by Nalcor or committed for delivery into Nova Scotia.  If the electricity available from Nalcor is eligible to participate in any of the state REC markets, it would also be able to access these markets.

  11. Hydro Quebec is currently well positioned to sell into the New England market and its favourable market positioning is expected to continue into the future.  It has transmission access into New England, surplus energy and is building additional hydroelectric generation facilities.

This report is organized to describe the factors, drivers, and market barriers that have been identified by the AEG participants.  The above findings were a result of the research and information contained in the report and presented in the order that they appear in the report. 

(1) ISO-NE and the NEPOOL market participants are currently evaluating alternative capacity market frameworks for the New England capacity market.  These discussions are taking place as part of confidential settlement discussions resulting from FERC’s Order in Docket No. ER12-953.  Based on the limited information available on the ISO-NE website, the redesign efforts are exploring a number of options, such as demand curve and mechanisms to reduce price volatility.

(2) In August 2012 Massachusetts amended its Green Communities Act now allow hydroelectric power, regardless of whether that power is eligible under the renewable energy portfolio standard, for meeting the state’s previous goal of at least 20 percent of the Commonwealth’s electric load by the year 2020 through new, renewable and alternative energy generation. Policies for supporting this goal have not yet been developed.

(3) Recent legislation to eliminate the 100 MW limit on hydroelectric resources died on April 13, 2012. The bill died due to unresolved disagreements between the House and the Senate.

View related Atlantic Energy Gateway studies.