Power trip | Do prospects for new energy infrastructure in Maine make the grade?

Editor’s note: After serving as the keynote speaker at the Mainebiz Powering Up symposium in October, former state Public Advocate Stephen Ward offered to share his thoughts on Maine’s energy outlook.

Energy infrastructure is key to Maine’s long-term economic prospects. But sadly, the claimed benefits of new energy infrastructure are often overstated or, at least, incomplete with respect to their impact on retail consumers. While major new investment always brings spinoff benefits of employment and spending in Maine’s economy, very few large-scale projects actually lower costs for energy consumers in the long run. In fact, given the complexity of energy markets and the fact that most key decisions affecting prices are made outside of Augusta, policymakers in Maine actually can do very little to lower prices right away for businesses and residential customers.

While forecasting the likelihood of new energy infrastructure may be difficult, it is an important piece of the public dialogue about energy options for Maine business. In this infrastructure forecast, I look at three key questions: How expensive is the new infrastructure to build and how cost-effective is it over its life? How lengthy or complex is the regulatory process that precedes start-up of operations? And how probable is rapid development given current economic factors and slack demand?

Here are my thoughts:

NATURAL GAS PIPELINES

Prior to the late 1990s, Maine’s only natural gas capacity was a 6-inch pipeline from Haverhill, Mass., to Portland. Today, the Portland Natural Gas Transmission System supplies natural gas to southern Maine and paper mills in Rumford and Jay, and a Maritimes and Northeast Pipeline brings natural gas across Maine to Boston from Nova Scotia, as well as from the Canaport LNG facility in St. John, New Brunswick. Not-in-my-backyard opposition to each of these pipeline projects was minimal.

Both the PNGTS and M&NE projects provided enormous value to the Maine economy. They made natural gas available to customers in areas previously unserved and stimulated construction of five new gas-fired power generators. Many jobs were created or retained at industrial facilities that could convert from residual oil to natural gas in their manufacturing processes. Because natural gas burns with fewer greenhouse gas emissions compared to oil, Maine’s air quality also has greatly improved. Natural gas pipelines are expensive to construct at $1 million per mile or more, but they are very long-lived. The Tennessee Gas Pipeline that brings gas to Haverhill from the Gulf Coast was built nearly 70 years ago and still is providing reliable service. High construction costs and low demand are likely to sideline the construction of new pipelines at present, however.

Key elements:

• Long service life
  
• High costs of construction
  
• Delivery of an environmentally preferred alternative to residual oil
  
• Source of price pressure on all comparable energy sources.

Ratings:

Cost-effectiveness: A

Likelihood of further expansion given current economic conditions and low demand: C

LNG FACILITIES

In recent years, there has been a major effort to increase the number of locations in New England and the Maritimes where specially equipped tankers can offload LNG for injection into the natural gas pipeline network. Progress in New England has been slow compared to the Maritimes, which has an operation under way at the Canaport facility at the Irving terminal in St. John, N.B. In Maine, at least eight different LNG sites have been proposed from Harpswell to Calais, with only one prospect in the Eastport area surviving into the state and federal licensing stage.

The arrival of significant new LNG supplies would have a decidedly positive effect in the region, both in increasing supply and in dampening price volatility for natural gas. This is because the sources of LNG supply for the Northeast are in North Africa and the Caribbean Basin, which exert competitive pressure on domestic natural gas delivered from the Gulf of Mexico. When these new supplies actually arrive in New England, energy costs are likely to go down in the region, increasing the market share for natural gas among competing fuels. Any expansion of natural gas consumption in Maine that displaces oil also will have environmental benefits.

LNG facilities have faced significant opposition due to fears of explosions and impacts on local fishermen. NIMBY opposition associated with LNG projects is quite high. Additionally, Canada and the province of New Brunswick both formally oppose the LNG projects proposed for Calais and the Eastport area due to concerns about LNG tankers using the Head Harbor Passage into Passamaquoddy Bay.

Key elements:

• Delivery of energy supplies that could moderate natural gas prices and improve air quality
  
• Concerns about the possibility, however remote, of a devastating explosion
  
• For Maine-based projects, concerns about the suitability of Head Harbor Passage for LNG tanker navigation

Ratings:

Cost-effectiveness: B

Likelihood of further expansion due to current economic conditions and low demand: C

WIND POWER PROJECTS

In the past five years, there has been an explosion of proposals for new wind power projects in New England and Atlantic Canada, due in part to attractive tax credits and renewable energy mandates. In ISO New England’s list of new generation proposals in New England, wind accounts for more than 3,000 megawatts — 18% of the total. Eighteen projects are currently proposed for Maine, totaling more than 1,350 megawatts. This is on top of the six large wind projects already operational in Maine.

All of these projects have encountered some degree of NIMBY push-back. As an example of how fierce the opposition has become, some opponents of wind projects in western Maine have compared wind farms to mountain-top removal mining in West Virginia. Additionally, several municipalities in Maine have adopted ordinances limiting or prohibiting wind turbines due to noise and view-shed concerns.

Maine has adopted a statutory goal of making 3,000 megawatts of total wind capacity operational by 2020, which, if achieved, would require major investments in new high-voltage lines that must be paid for by developers and utility ratepayers. Developers will have to make costly investments to connect remote wind sites to substations on the grid. And electric rates in Maine will go up to pay for new transmission links connecting wind power resources to the high-voltage corridor from southern Maine to Boston and points south. It’s unclear whether these necessary transmission investments can be made, given their cost, and in a way that does not cause unreliability on the grid. In 2009, the Maine Public Utilities Commission dismissed without prejudice a proposed tie-line from Aroostook County to the New England grid precisely because of reliability concerns raised by ISO-NE, the grid operator.

Finally, as an intermittent resource that is available only at limited hours of the day or week (35% or less), wind power requires some form of backup from other generators in order to optimize its value to grid managers. In conjunction with a fossil-fueled generator, the environmental advantages of a wind turbine are diminished.

Key elements:

• Zero fuel cost and zero greenhouse gas emissions
  
• Expense in connecting remote sites to substations
  
• Ratepayer cost for transmission lines to the New England market
  
• Potential issues of unreliability and the necessity for backup (often fossil-fueled)
  
• Site-specific NIMBY opposition

Ratings:

Cost-effectiveness, without consideration of associated transmission: B

Cost-effectiveness, with consideration of associated transmission costs: C

Likelihood of further expansion due to current economic conditions, tax credits and mandates: B

NEW POWER LINES

At present there are two high-voltage alternating current tie-lines connecting Maine and New Brunswick and one direct current tie between Quebec and Massachusetts. New England also relies on several interconnections with New York. In order to deliver hydroelectric energy to New York City from Quebec, Hydro Quebec has proposed a new, 2,000-megawatt DC cable under Lake Champlain and on the Hudson riverbed. Hydro Quebec is also working on a joint venture with Connecticut and Massachusetts utilities for a 1,200-megawatt tie-line to southern New England through New Hampshire. It is not yet clear whether either of these projects will receive financing. If these major hydro-electric projects go forward with a “renewable power” designation, it will greatly reduce the ability of other, smaller renewable projects in the region to get built.

Waiting in the wings is a proposal from Project Neptune for a DC submarine line from Nova Scotia directly to Boston, avoiding land-based constraints. In conjunction with National Grid, in 2007 Nova Scotia-based Emera proposed a Northeast energy link via a DC cable from Orrington to Tewksbury, Mass., to deliver green power from Maine and the Maritimes to points south. Finally, Central Maine Power received in June approval for 350 miles of new and upgraded transmission in its territory. This will facilitate movement to southern New England of Canadian power brought to Maine over any new international tie-lines.

All of these prospects for new transmission lines ultimately hinge on the projected level of load growth in the region. Although mandates in many New England states create valuable incentives for renewable energy, AC transmission line construction costs $5 million per mile and DC costs are even higher. For a project to get financing, there needs to be clear evidence of major growth in peak demand in New England, which ISO-NE is not forecasting. In fact, the prolonged recession makes likely a surplus in electric capacity in the region for some time to come.

The allocation of construction costs also is a thorny issue. As a result of federal legislation in 2005, the North American Electric Reliability Corp. for the first time received federal authority to mandate reliability improvements in the electric grid, rather than merely serving as an industry advisory group. ISO-NE implements these NERC requirements and evaluates infrastructure projects with a priority to improve grid reliability. Costs for reliability-enhancing projects are distributed among utilities in New England on a pro rata basis. Those projects that only seek to capture market opportunities or expand the use of green power do not receive the same priority and all of their costs remain with the project developer or host utility.

Key elements:

• Very high costs of construction with long lead times due to regulatory requirements
  
• Extensive landowner involvement in acquiring property along rights of way
  
• Complex cost allocation at ISO-NE for reliability upgrades.

Ratings:

Cost-effectiveness: B

Likelihood of further expansion due to current economic conditions: C

WHAT TO EXPECT

The first conclusion is that all power-generating projects necessitate some amount of transmission investment in new high-voltage lines and these investments are extremely costly. Even when ISO-NE identifies a CMP transmission project as “reliability enhancing” and its costs are allocated among all New England utilities, 8% or more will be allocated to Central Maine Power and its customers. Consequently a $2 billion transmission line across the breadth of Maine would raise CMP’s electric rates by $160 million — certainly not a trivial impact. A portion of the necessary investment in CMP’s territory is now being made as a result of the Maine PUC’s approval of the “Maine Power Reliability Project,” but significant additional investments remain unfunded. Accessing Canada’s energy resources can be a very expensive proposition.

Secondly, there is no simple way for ratepayers in Maine to capture for in-state use the low costs of wind, tidal or biomass generation at the expense of other power consumers in New England. This is because ISO-NE manages electricity markets for the region as a whole, based on generators submitting bids for each hour of the day. As long as Maine’s utilities continue to participate in ISO-NE, which the Maine PUC recently determined to be necessary for the sake of grid reliability, these market rules establish comparable prices throughout New England. To be sure, there are minor variations due to transmission constraints or access to Canadian power, but the ISO-NE markets operate to guarantee that all sellers will be paid the same market price for a given hour. If a state established a power authority to finance and build generation, that authority would be subject to ISO-NE’s bid system for hourly electricity prices.

In order for the power authority to “capture” the value of low-cost power for Maine ratepayers, it would need legislation to circumvent the ISO’s bid-based market rules and permit the power authority to sell electricity at cost rather than the designated market price. This might be possible, but only if: 1) ISO-NE consented to an exception in its market rules for the benefit of a single state’s power authority; 2) if the Maine Legislature enacted a partial repeal of electric restructuring to facilitate this type of transaction; or 3) Maine’s utilities elected not to renew their interconnection contracts with ISO-NE. None of these possibilities appears likely in today’s policy environment.

Finally, the timing of new investments in infrastructure is entirely subject to trends in the regional economy and its very slow emergence from a prolonged recession. In order for Wall Street to finance an LNG facility, a wind farm or a transmission project for either natural gas or electricity, its sponsors will need to point to increasing demand for energy and to disappearing surpluses. At present, ISO-NE predicts surplus in generating capacity at least through 2012, with the longer term subject to varying economic forecasts for New England. Currently, natural gas prices have fallen far from their July 2008 highs, as has the wholesale price of electricity. In order to receive financing, new infrastructure projects will need to point to increasing, not decreasing, prices for energy.

Stephen Ward was Maine Public Advocate from 1986 through 2007 and now operates Perkins Point Energy Consulting in Newcastle.