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Finding the 'Sweet Spot'

Fortnightly Magazine - May 2008

to environmental requirements. They treat all resources the same because markets only evaluate a resource for one thing, and that’s price. And of course we check to make sure that whatever is bid into the markets will satisfy our reliability criteria. But we don’t do anything to discriminate from one resource to the next from an environmental point of view.

For example, let’s say that a state decides to tax carbon or put in place a cap-and-trade system, such as RGGI. That will tend to make fossil-fired resources, such as coal, gas or oil, become relatively more expensive over time. If these resources aren’t competitive from a price standpoint, most likely they won’t be selected to run.

Fortnightly: Have you been an activist on climate change? Has the ISO participated regarding legislation or the debate on carbon taxes versus emissions allowances?

van Welie: We are neutral on which is the better method. The method doesn’t concern us because we can accommodate either one.

We have spent a lot of time trying to analyze the consequences of environmental regulation for the region, and inform policymakers. Annually, we publish the regional system plan. Through this plan, there has been a practice over the past several years of trying to quantify the environmental implications of the resources we have on the system. We took it a step further last year, which I thought was quite innovative. We conducted a process called scenario analysis. We convened a stakeholder working group comprised of market participants and state environmental and economic regulators, and we analyzed the potential impact of different resource choices on New England’s power system. Essentially, we benchmarked different resource choices from the perspective of reliability, economics, and environmental outcomes. Of course, what we were looking for was the “sweet spot” where you find the intersection of all three.

Clearly, there are tradeoffs between cost, for example, and environmental requirements. What you are looking for is to try to see what the lowest-cost resource would be that would satisfy both reliability and economic requirements.

Fortnightly: What do you do with that information when you get it? Do you share that with power producers and utilities?

van Welie: We published it and made it available to all our stakeholders last year. We shared it with policymakers as well as market participants. [Editor’s Note: See, www.iso-ne.com/committees/comm_wkgrps/othr/sas/mtrls/elec_report/scenari...

There were some really interesting results for New England. It showed that energy efficiency was one of the clear winners in terms of a resource type that would solve that “sweet spot” intersection that I described. Given the situation that we have in New England, a number of constraints are placed upon us. We are at the end of the pipeline. We import all our fossil fuels. We are densely populated, with 14 million people in a relatively small area. So our resources are somewhat limited.

It was interesting that, given our RPS policies and our commitment to RGGI, there are several resource types that will help us meet those requirements. These include greater interconnection with renewable resources, such as wind and