For the last 3 months, we have seen the highest priced electricity in WNY’s Bulk market (NYISO) since Hurricane Katrina trashed our country’s natural gas supply in 2005. That was also the year of record profits for any power company running on coal or nukes in NY. It turns out that low production costs for old coal burners and paid off (but still really dangerous) nukes coupled to high methane prices is a recipe for printing money by the Megabuck then, and in 2008, and evidently in 2014, too. But with methane prices still in the proverbial pits and selling for less than what it often costs to produce it from expensive fracking based wells, well, what could be the reason for the big price spikes of late? Here are the gory details in a graph:
It turns out that when NRG mothballed most of its Dunkirk and about half of the Huntley facilities, WNY had to now IMPORT more than a third of the electricity consumed in this region, most likely from Homer City, Pa (a 2200 MW coal burning facility). But when the recent cold weather came and power demands in Pennsylvania used up the former’s “excess”, well we in WNY had to fend for ourselves. And this meant we had to use expensive methane based electricity from local and regional producers who were able to charge some pretty outrageous spot market prices (sometimes more than 50 c/kw-hr for some short periods of time). And because of the way the NYISO system prices things, even coal burners with a production cost near 3 c/kw-hr got to charge 50 c/kw-hr for that hour. What a neat racket, eh? Well, like they say, nice money if you can get it…
The net result is average prices that have been running at 3 to 4 c/kw-hr have for January through March from 2009 to 2013 now averaged near 9 c/kw-hr in Zones A and B (West and Genessee). But methane only averaged around $5/MBtu, and it should only cost around 6 c/kw-hr to make electricity for those periods of time that it was needed (which is not that often), before adding the profit But did a 46c/kw-hr profit really have to be added?. This is what happens when an oligopy morphs into a de-facto monopoly – monopolists can get really high prices and some seriously large profits, because there effectively is NO COMPETITION. Which is fine for the corporations concerned, as they hate competition in the market for the product they make, but they love it for their suppliers…
Anyway, if you want to get reasonable electricity prices, this is where wind turbines could and should come in in a huge way. Wind turbines can tame monopoly prices in NYISO like markets like nothing else can, and there is a just history and mass of empirical data wrapped up in a concept called the “Merit Order Effect”. Wind sourced electricity has clobbered the rip-off profits obtained by coal burning power companies in Europe, and they could do it here, too. The reason is due to the fuel cost of wind turbines – which is zero. And we also have a pretty massive capability to store any excess electricity made via pumped hydro, (and to deliver 1680 MW from the two instate PH units plus 560 MW from some nearby across the border facilities). So buffering variable wind to variable demand is not a problem, and that does not even include tapping our hydro units or Quebec as needed in a pinch.
If we don’t start installing some competition to those incestuous fossil fuel twins – natural gas and coal – for our regional electricity supply, we are going to get royally screwed by some de-facto monopolies that supply some of our electricity. We will be paying prices over twice what Long Island averaged last year. Part of this is because both NRG and AES decided that they no longer want to “play the ponies” – gamble on future electricity prices – and that they will go where they can be assured of predictable future prices. Heck, as long as they get power purchase agreements that cover their costs and allow them to hit their profit targets, they will install (and have installed) PV (California) and especially wind turbines (Texas). They don’t care how they make electricity, just that they get a power purchase agreement so that they can sell this electricity at a known and knowable price. After all, lost they a lot of money or barely broke even in the last four years in a really competitive electricity market, even but definitely missed their profit targets. And they are not charities.
The present high prices are what happens when fossil fuels and nuke sourced power generators have no competition, and that gets coupled to fluctuating methane prices. But with a lot more wind turbine electricity installed not only we could provide that competition and get lower average wholesale prices, but we can recycle money locally that is now exported to pay for out of state sourced fuels, or exported to Entergy and Constellation for their inherently dangerous nukes that were bought on the cheap and have been long since paid for. That export of money makes all of us POORER, and that is really something most of us could do without in these trying Austerity driven economic times. And with wind turbines, there is the possibility of new job creation in both the installation and manufacturing of them, especially if we in NY own these turbine installations. Oh, by the way, there no chance of a Fukushima or Chernobyl style epic disaster repeat if wind is used as our major electricity source, and we won’t trash out planet’s climate control system via the CO2 pollution that comes from leaking methane and CO2 emanations, either.
So what is needed to get around the major hosing we are experiencing from pollution sourced electricity that provides next to nothing in the way of jobs for the over $350 million spent in just the last 3 months for our electricity? Actually, we just need long term price security for local and regional renewable electricity supplier owners – the local transmission monopolies need to offer up lots of long term Power Purchase Agreements (PPAs), as is done in states like Iowa, where Warren Buffet owns the local electric monopoly. And if neither Iberdola (NYSEG, RGE) nor National Grid will do it, maybe we can have the Peoples Power Company of NY (NYPA) put their (= OUR!) money where their mouth is. And whether those PPA’s are provided by Feed-In Tariffs or just long term contracts, well, getting the installations up and running is what is important. And that is not happening now, nor will it for AT LEAST the next two years unless we get some change for the better, soon.
So, it’s an election year. Time to squeeze some political hopefuls, perhaps, as this IS the best time to do it. If you also want reasonable and predictable electricity prices upon which we base our civilization, we have to move away from the Casino and 3 card Monty game that is NYISO and variable natural gas prices coupled to old, paid off coal burners and nukes. The actual cost to deliver wind based electricity in WNY WITHOUT SUBSIDIES is less than 9 c/kw-hr, as long as a reasonable and PREDICTABLE prices can be had for the delivered product. And it gets that way because wind turbine owners (and that could also be municipalities and NYPA, too) can lower the cost of borrowing money significantly if they could just know what their future cash flow was going to be. Variable pricing is meaningless with wind turbines, because the cost of production is set on the first day of operations. The money cost (reasonable rates for bank loans/bonds/investors or loan shark rates when future prices are always a gamble) is a really big deal for renewable energy. For the wind biz, varying fuel prices are irrelevant, as is the situation when the wells and mines deplete and do not get replaced. Fixed electricity prices - it’s such a 21st century thing. So when does WNY wake up and join the 21st century?