Friday, July 22, 2016

Energy infrastructure options essential to Massachusetts economy

A six-member conference committee is hashing out the details of an extensive energy bill now in two separate bills S. 2400 and H. 4385. The Beacon Hill Institute does not advocate for or against any piece of legislation. However, the Institute provides economic analysis of current proposals related to its research portfolio. Some key observations are in order.

The debate over hydropower from Quebec, natural gas or other renewables such as offshore wind and solar is absolutely critical if the Commonwealth is able to meet the goals outlined in the Global Warming Solutions Act. Everyone wants to reduce greenhouse gas emissions but that goal requires hard thinking, particularly since both coal and nuclear power plants will be closing down. Debates about pipelines generate much heat and little light and ignore the pressing need for reliable, cost-effective sources of energy.

Section 30, would amend current law by adding the following language: “Nothing in this section shall be construed to authorize the department to review and approve a contract for natural gas pipeline capacity filed by an electric company.”

To foreclose on possible construction of energy infrastructure, the direct intent of Section 30, would be shortsighted. In fact, the new language would pose severe economic consequences to the Commonwealth of Massachusetts, which already faces competitive disadvantages on energy costs. According to the Institute’s 2014 State Competitiveness Index, Massachusetts ranks first for having the conditions in place that provide for a high level of per capita income and continued growth. But energy has been a persistent disadvantage for Massachusetts since the Institute began ranking states in 2001. Last year in a sub-index that measures infrastructure Massachusetts ranked 44th when considering electricity prices per kilowatt hour. High-tech manufacturing could use the break in the form of competitively priced energy.

Some energy realism is in order. It is clear from the current economic and climate change literature that natural gas is essential to meeting the goals of a cleaner environment in both the short and long term. The state needs to preserve its options to build such facilities.

ISO-New England, which manages the region’s power grid, notes “wind and solar energy have been expanding dramatically though it will be several years before they generate a significant portion of the region’s electricity.” That means natural gas remains essential. By 2022, natural gas is expected to generate 55% of electricity.

In 2012, the ISO studied a scenario whereby 28 dirty plants would be retired. The grid operator found that “approximately 6,000 MW of resources would need to be replaced, repowered or retained to satisfy both generation and transmission reliability requirements. Given current trends, the majority of replacement resources would be natural gas-fired generation.”

The ISO report diplomatically highlights the shortcomings of renewables saying the “reliable large-scale integration of these resources presents challenges for grid planning and operation.” These include variability, (lack of wind and sun), issues “behind the meter” which make it difficult to forecast demand, and transmission limitations. These shortcomings inherent in renewables make Section 16 of the bill, which would double the state’s Renewable Portfolio Standards, all the more harmful.

Closing the door on natural gas would be a policy mistake.

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