Ensuring fuel security for the electricity system: New England and the role of LNG
Promoting a competitive market structure shields consumers from costly risks and provides continued opportunities to quickly accommodate to a low carbon future, the authors write.
Following the presidential election of 2016, the U.S. Department of Energy (DOE) sought to establish a basis for providing cost-based compensation to a subset of the nation’s coal and nuclear generation units thought to be facing retirement.
The DOE argued that the “fuel security” offered by the units via on-site fuel storage was essential to supporting a more resilient power system. The proposal stood in stark contrast with current federal policy, which favors market-based mechanisms to determine the nation’s mix of generating assets and other sources of supply.
While the Federal Energy Regulatory Commission (FERC) expressed reluctance toward DOE’s efforts, it too had recently signaled a willingness to consider cost-based compensation over concerns of “fuel security.” In fact, FERC identified “fuel security” as a key factor in its support for ISO New England’s (ISO-NE) proposed cost-of-service compensation agreement for a relatively new gas-fired power plant in Boston, Massachusetts.
While concerns over the increased use of cost-based compensation mechanisms have risen to the forefront of discussions concerning the performance of U.S. wholesale electricity market design, fuel security had, until recently, been largely absent from the debate. As such, very little consideration has been given to the costs and benefits associated with incorporating fuel security constraints into the U.S. wholesale electricity system.
To its credit, ISO-NE has taken a leadership role in bringing forth market-based reforms intended to ensure the region a reliable supply of power.