Takeaways from the ISO-NE Future Pathways Study

By Roy Harvey and Kent Wittenburg on behalf of the FTG Technical Committee

 

The Pathways Study, commissioned by ISO-NE, seeks to evaluate a number of alternative pathways forward in market structure and regulation to achieve the greenhouse gas reduction targets of the NE states. The assumed target is 80% reduction in carbon emissions by 2040 over 1990 levels. The study is about what pathways would cost the least to get to the desired outcome, and  examines complications and market distortions that could result. It also examines the implications for region-wide coordination among the New England states for implementation of each pathway. The final Pathways report was delivered in April 2022, and it is currently being evaluated by NEPOOL, the NE states, and others. Comments have been submitted by the power industry and some environmental groups. Materials are available through the ISO-NE Future Grid Initiative .

Advocacy groups should understand this study since it is likely to be used as a rationale for proposed market changes by ISO-NE going forward. It is vital to recognize the larger context and also any limitations and questionable assumptions in order to provide input to decision makers for the grid of the future in New England.  After study and discussions, the Fix-the-Grid Technical Committee concluded that the study was limited by its failure to take environmental justice and the social and environmental costs of carbon fully into account and by its omission of the role of limiting demand and energy storage in the grid of the future. We also found that issues with carbon pricing, the solution favored by the study, were not acknowledged. Further, there were open questions about the proposal for a new clean energy market, and the process of how to use studies like this in ISO-NE lacks transparency and public participation.

Study Summary

The study examined four pathways and came to the following conclusions about each. Comments from other organizations are summarized in italics.

 

1. 1. Status Quo: The NE states continue independently to fund renewable energy development by funding power purchase agreements with clean energy developers. This was found to be the most expensive of the alternatives, largely because it is dependent upon uncoordinated administrative processes in each of the states and does not necessarily incentivize the least costly alternatives at the appropriate time.

       

      • • A comment by Advanced Energy Economy noted that the study makes the questionable assumption that the mix of purchasing agreements will not change going forward. Changes could easily affect the outcome.
      • • Other clean energy advocates also question the conclusion that this pathway is necessarily the most expensive. Also, among the alternatives, it would require the fewest changes and negotiations among the states.

1. 1. Forward Clean Energy Market: A new centralized market is proposed for tradeable clean energy certificates for future energy. The conclusions were that this mechanism would be more efficient than the Status Quo but that it does not guarantee that new clean energy sources would displace fossil fuels.  It also would require a lot of work to set up. Lastly, it might result in negative energy prices, an inefficient market distortion, since some companies might make money by paying others to accept energy that the companies have already been paid to produce through energy certificates in advance.

       

      • • Many clean energy companies and environmental advocacy organizations did not find the warnings about negative prices convincing. 
      • • The New England States Committee on Electricity (NESCOE) has signaled interest in this option.
      • • There are many questions about how this new future energy market would relate to the existing capacity market.

1. 1. Carbon Pricing: The study found that this would be the cheapest pathway and the simplest to implement.

       

      • • Virtually all the fossil-fuel power companies who commented are in favor of this in part because some generation sources such as combined cycle natural gas would be incentivized over more carbon-intensive generation. 
      • • Some clean energy companies and environmental advocacy organizations objected to any further incentives for fossil-fuel-based generation.
      • • As noted below, carbon pricing has largely failed to date in the US because it is politically unpalatable.

1. 1. Hybrid: This pathway combines a version of the Forward Clean Energy Market (with the wrinkle that only new clean energy sources are eligible) with carbon pricing. The study concluded it would be less costly than all pathways except carbon pricing alone. This would likely be the most complex pathway to implement but combines the merits of carbon pricing (which increases market costs of electricity)  with a Forward Clean Energy Market (which decreases market costs).

       

      • • Some commented that excluding existing clean energy sources from the market would be inadvisable.
      • • NRG Energy fleshed out more details of this proposal in  “Straw Proposal for a Market-based Approach to New England’s Clean Energy Future”

Observations from the Fix-the-Grid Technical Group

We have questions and concerns about the scope and content of this report and the process of its roll out.

 

• • By design, this study evaluated alternative pathways for the future grid purely from an economic perspective rather than through a moral or environmental justice lens. This is a significant limitation.

     

    • • By not adequately accounting for the costs of near term fossil fuel use on the climate, not to mention the public health/environmental justice costs, this study underplays the benefit of earlier more aggressive decarbonization and the costs of continued delay. 
    • • Some overbuilding of renewable generation resources, though possibly not ideal in economic efficiency,  should be acknowledged as providing social and environmental benefits over the alternative of fossil-based peaker resources.

• • The study ignores the role of meeting decarbonization goals through limiting energy demand and underplays the role of storage.

     

    • • There is minimal consideration of conservation, time-of-use pricing, or demand response, though it is acknowledged that new rate structures and demand management could be useful in the future. 
    • • The report does not adequately consider the pace of future technology innovations including cost reductions that are particularly likely in energy storage such as iron-air and redox flow batteries.
    • • There is no direct linkage assumed between renewables and storage, which should be part and parcel of one form of reliable energy supply. Storage and dispatch of renewable energy could be tracked through the existing Generation Information System.

• • Issues with carbon pricing were ignored.

     

    • • The conclusion that carbon pricing alone is the most desirable pathway forward should be viewed skeptically since to date fossil fuel interests have been easily able to prevent carbon costs from rising commensurate with environmental and social costs by appealing to pocket book political issues. (See “The Trouble with Carbon Pricing.”) 
    • • It is no accident that comments from the fossil industry almost universally favored this proposal.

• • While some form of the forward clean energy market proposal may be worthy of our support, the study leaves many questions unanswered.

     

    • • Consistent with other organizations’ comments, we have questions about how a new forward clean energy auction would be conducted (in light of the challenges we see with the current capacity market structure).
    • • We also fail to understand how it would operate with existing capacity markets and how a centralized market could address EJ concerns, traditionally a purview of the states. 

• • The process of how this report will be used lacks transparency, and it is lacking in public participation. According to ISO-NE’s updated roadmap and their 2023 work plan, the goal is for the preferred pathway to be discussed and determined in 2023, followed by implementation.

     

    • • How can we be sure that the decision will not be made behind closed doors, that it will dispassionately consider interests other than fossil-fuel-based generation?
    • • How will the roles of ISO, NESCOE and NEPOOL  be weighted?
    • • How can the public be involved in the deliberations moving forward?
    • • How can the ISO be held accountable for their decisions? 

For additional thoughtful criticisms of the Pathways Study, we particularly recommend the comments by Advanced Energy Economy and from No Coal No Gas.