Winter 2014: How Fuel Oil Saved The Day In New England

Apr 30 2014, 7:11pm CDT | by

The first three months of 2014 were cold in New England, but not that cold.

In January, temperatures dipped well below the 20-year historical average in New England, but only a few times and only for one or two days at a time.

“We had a cold winter, but we had spots of cold as opposed to, in 2004, where there was extended cold,” said Commissioner Moeller, while speaking at a technical conference convened by the Federal Energy Regulatory Commission (FERC) in early April. “We have to assume that we will have another winter, if not like this one, perhaps even worse where an extended cold snap could further expose our vulnerabilities.”

These “spots of cold” created a series of crises for the electric grid that came dangerously close to becoming catastrophes.

For better or worse, oil was likely the only reason they didn’t.

In New England, coal and oil-fired power plants ran at or near full capacity for most of the winter. By contrast, natural-gas-fired power plants produced far less than their total capacity.

Per the Independent System Operator for New England: “[O]n January 28, when temperatures were very cold, gas generators produced only about 3,000 MW during the peak demand hour, although there was more than 11,000 MW of natural-gas generating capability.”

The economic consequences were bad, but not as bad as they would have been without oil.

Use of fuel oil by generators prevented in New England kept gas prices considerably lower than other parts of the Northeast during several cold weather events. For example, on January 22, natural gas prices reached $73/MMBtu at Algonquin Citygates in Boston. By contrast, spot natural gas prices at Transco Z6 Non-NY, prices spiked to $123/MMBtu, breaking all previous records.

Electric power prices also soared. The total value of the wholesale energy market in New England for the months of December, January and February, was about $5.05 billion, or roughly the same value of the entire 12 months of 2012.

All five natural gas pipelines that serve New England operated at or near full capacity. Needless to say, the natural gas pipeline system serving New England is far more constrained than anyone had previously appreciated – with the possible exception of the ISO-NE.

In early 2013, the ISO-NE created the “Winter Reliability Program” to address the problems created by pipeline constraints. The program paid about $80 million to oil and dual-fuel power generators to store more oil in their tanks than they otherwise would have. The program created an initial inventory of about 3 million barrels of oil. By February, about 2.7 million barrels of oil from program participants had been burned, or the equivalent of about 1.6 million MWh of electricity.

The strategy was expensive and dirty, but it was probably the only reason New England avoided rolling blackouts this winter. If anything, oil seems likely to become more – not less – critical for maintaining reliability in the near-term future.

By next winter, Vermont Yankee in southern Vermont and Salem Harbor units 3 and 4 in Massachusetts will be retired, reducing the region’s non-gas resource by about 1,200 megawatts.

“To put this into perspective, the Winter Reliability Program procured less than the combined capabilities of Vermont Yankee and the retiring Salem Harbor units,” said the ISO-NE recently.

 
 
 

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