Footnotes

Wind, the Beginning of the End of Oil Generated Electricity

Why oil is on the way out for New England's electric grid
But almost 25 percent of our power still comes from it

Abundant wind power, with no fuel cost, is destined to replace the most expensive source of electrical generation - and that is from oil fueled power plants. Allow me to explain. In New England, unlike the rest of the country, oil generated electricity plays a large but diminishing role. Almost a quarter of the installed capacity of all power plants here use oil as fuel [1].

Understanding how electricity is dispatched on the grid is crucial to the explanation. The Independent System Operator called ISO New England, based in Holyoke, is responsible for the reliable operation of the power system by dispatching power plant production and providing a fair wholesale market to sell and buy power.

Dispatch is regulated by a day-ahead hourly bid stack with offers from merchant power plants arranged from lowest bid to highest. The unit of trade is the megawatt-hour (MWh). That's a thousand kilowatt-hours, a unit more familiar to most of us and enough to run a modest home for about two months. As the New England load for each hour is matched with offers, a "clearing price" is established by ISO at the point where the expected load exactly meets that level of offers. All plants offering power below the clearing price are allowed to dispatch (inject) their power onto the grid. Those above, are not. This assures the lowest cost for all consumers. Since power cannot be stored on the grid, the load must be exquisitely balanced with power dispatched at every moment.

What is not perceived by most of the public is the fact that this so called "clearing price" is paid to all providers of power that get dispatched. This means for example, a power plant owner who offers power at $40/MWh for a period when the clearing price becomes $80/MWh, that owner will be paid $80/MWh as will all others whose power is dispatched.

Six years ago the cost of oil and natural gas were roughly equivalent in price per unit of energy, with coal at about half that. Since then, oil and gas have dramatically increased by a factor of roughly four with respect to the price of coal. Knowing the efficiency of generating plants [2] one can calculate the cost of fuel alone to generate electric power. For oil fueled plants it's now at least $93/MWh [3]. For modern natural gas plants, about $48/MWh [4]. And for coal plants, some $18/MWh [5]. It's obvious who's making the most profit as who is being squeezed.

The impact of more costly oil has been to dramatically diminish production from the region's large oil generating plants. For example, the oil-fired Canal Plant in Sandwich (1,120 MW) had a capacity factor (actual production divided by maximum possible production) of 58 percent in the late 1990s consuming some 8 million barrels of oil a year and producing around 6 million MWh. Incidentally, that oil consumption rate is equivalent to almost two days production of all the oil wells in the continental United States for this one power plant in our back yard.

However, last year the Canal plant, the third largest in Massachusetts, was operating at a capacity factor of only about 17 percent producing some 1.7 million MWh [6] by consuming about 2.3 million barrels of oil (96 million gallons). Compared to the expected output of the Cape Wind project of 1.6 million MWh, one wonders if the Canal plant could simply be replaced.

Further north, at the Salem Harbor plant, the fifth largest in the state, where their oil fired Unit #4 (436 MW), which is bigger that all three of its coal units combined, was down to a capacity factor of just 5 percent [7]. And most surprising, the oil fired Unit #4 (446 MW), at Brayton Point, the second largest plant in the state, was down to 1 percent [8]. It is simply turned off most of the year. Currently coal profitably fuels the other three units at both those power plants.

But for wind and hydro plants, the cost of fuel is zero. By ISO rules, these zero-cost fuel generators can bid in at the bottom of the stack; hence are always dispatched [9]. And when they are, they bump off the top the most expensive bids which are almost always from the oil-fueled power plants, and next, from natural gas units [10]. This saves all consumers money by lowering the clearing price of wholesale electricity while providing a competitive return, which is the "clearing price" to wind and hydro plants. Savings for the New England region from the Cape Wind project alone could be some $50 million a year [11].

For a nation addicted to oil, the importance of the impact of utility-scale wind power on national security, energy independence and sustainability cannot be overlooked as it replaces imported oil first and then natural gas. Certainly 20 percent of New England's electricity can be reasonably generated from wind [12]. The avoidance of a million tons of carbon dioxide from oil burners by the Cape Wind project alone, in addition to thousands of tons of unhealthful sulfur and nitrogen oxides, is reason to be optimistic about the future of offshore wind in New England.

As this flagship project leads the way to more offshore projects in Massachusetts and Rhode Island, I believe it will be not only the beginning of the end, but the coup de grâce of base load oil generation.

By the way, the Canal Plant is for sale, along with the rest of Mirant's plants [13].

Charles W. Kleekamp, retired engineer and vice president of Clean Power Now.

[Footnotes]

1. ISO NE Update, Capitol Hill Briefing, Dec. 6, 2006.

2. Efficiency is revealed in a parameter called the heat rate (in BTU/kWh), that is the number of BTUs required to product a kW of electrical power. The heat rate for an oil fueled plant like Canal is 10,164 BTU/kWh, for a coal plant it is about 10,500 BTU/kWh, for a modern combined cycle gas turbine plant it is about 6,700 BTU/kWh.

3. Based on a price of $57.48 for a barrel of 1% sulfur residual fuel oil at New York on 7/31/07. Source: EIA. Note, lower sulfur fuel oil can be about $10 a barrel more. In January 2002, the price was $14.78/barrel.

4. Based on a price of $6.11 for a million BTUs of natural gas at the Henry Hub in Louisiana on July 31, 2007; source, EIA. Add pipeline shipping charge of about $1/million BTU. In January 2002 the price was $2.02/million BTU.

5. Based on a price of $1.78 for a million BTUs of coal for electric plants on April 30, 2007. Source: EIA Table 9.10.

6. Interview at Canal Plant on March 22, 2007.

7. Salem Harbor Station 2005-2006 Emission Report, Jan. 29, 2007.

8. Interview at Brayton Point on March 29, 2007.

9. ISO rule on dispatch of zero cost fuel generators, "Electricity Costs and Pricing in New England's Power Market," February 2006; page 2 of 3.

10. Oil and natural gas set the clearing price 80 percent of all hours; Source: ISO NE, "Ensuring Long Term Reliability of New England's Regional Electricity System," Gordon van Welie, President, March 30, 2006. 

11. A savings of $25 million was based on bumping natural gas units with an estimate of natural gas priced at $3.4/mmBTU for 2005. Source: La Capra Associates, Feburary 2002. The price of natural gas as of September 2007 is in the range of $6 to $7/mmBTU, double the price estimate of 2005, hence double the savings.

12. "Offshore Wind Energy Potential for the United States," Walt Musial, National Renewable Energy Laboratory, May 19, 2005. The New England region has an offshore wind resource of 10,300 MW in relatively shallow water up to 30 meters deep. This excludes area inside 5 nautical miles of shore and most of the area for the Rhode Island initiative of 1,150 MW. Source: Table 6-6 of "RIWINDS Phase I: Wind Energy Siting Study," April 2007.  Note the current installed capacity New England is 31,000 MW.

13. "Mirant Corp. ponders sale of Sandwich plant," by George Brennan, Cape Cod Times, April 10, 2007.

 About Clean Power Now

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We believe that the timely development of such projects, in conjunction with energy efficiency and conservation, will bring about a clean, healthy environment, an improved economy and a more secure, sustainable America.