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Study by Strategen, Prepared for the Sierra Club
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Review by Martyn Roetter
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This report investigates the impact on electricity prices in New England from the combination of three factors. They are the (1) region’s substantial dependence on natural gas as a fuel in its power plants, (2) way wholesale electricity prices are determined in real time via an auction-style bidding mechanism that occurs every five minutes of the day, and (3) consequences of volatility in the price of natural gas.
Wholesale and hence eventual retail prices for electricity are set by the highest marginal-cost resource that is selected to provide power in any given auction; they tend to be natural gas plants, as compared to wind and solar generators. The report concludes that the more customers electrify their homes reducing the demand for natural gas (while the electricity sector continues on its current trajectory towards cleaner resources with lower marginal production costs), the less vulnerable they will be to large fluctuations and spikes in the price of electricity caused by volatility in the price of natural gas.
This analysis demonstrates the complexity of the interactions between gas and electricity in the energy sector. It argues that the best opportunity to achieve stability and avoid increases in the prices we pay for the energy we use lies in the combination of increasing electrification. This would decrease our use of gas and the replace gas fired power plants with lower cost (and clean) power generation.
In this optimistic scenario, doing the right thing to tackle climate change is also the right thing for our pocketbooks.
