New England Power Plants Burning More Oil in Frigid Weather

New England is relying on power plants fueled by oil and coal as bitter cold weather boosts demand while pipeline constraints limit natural gas supplies and send prices soaring.

The grid operator asked some units that burn fuel oil to start up to ensure adequate supplies and avoid “emergency action” if gas supplies or generation were to be disrupted unexpectedly, said Vamsi Chadalavada, chief operating officer of ISO New England Inc. Coal plants are running because the fuel is cheaper than gas, he said.

Power producers on the six-state grid have shifted away from coal and oil in recent years as they took advantage of cheaper gas made available from shale reserves such as the Marcellus in the Northeast. Low gas prices also limited imports of liquefied natural gas.

“The ISO has been worried for a while now about its reliance on natural gas and whether there is going to be an adequate supply of natural gas when you get to these high-demand days,” Chadalavada said in an interview from the system operator’s headquarters in Holyoke, Massachusetts. “It’s going to be a recurring issue until there are improvements within the infrastructure.”

Spot on-peak wholesale electricity on the six-state grid rose $5.05, or 2.4 percent, to average $217.12 a megawatt-hour as of 5:13 p.m., the fifth consecutive gain, according to according to ISO New England data compiled by Bloomberg. Prices are heading for the highest daily average since July 22, 2011.

Frigid Weather

The temperature in Boston dropped to a low of 8 degrees Fahrenheit (minus 13 Celsius) today compared with the average low of 22 degrees, and may bottom out at 16 tomorrow, according to AccuWeather Inc.

Spot gas at the Algonquin City Gates for delivery to locations including Boston rose $3.1155, or 10 percent, to $34.3839 per million British thermal units on the Intercontinental Exchange, the highest price since January 2004. Algonquin gas traded at $3.608 on Jan. 11.

Coal units become economical in the region when gas prices top $6 per million Btu, Chadalavada said. Plants burning fuel oil became economical when gas climbs above $24.

It can take 12 to 20 hours to ramp up plants fueled by oil and coal, he said.

Oil-fired units produced 1,211 megawatts, accounting for 8 percent of the region’s total, at 3:08 p.m., the grid operator said. There was no reported oil generation a week ago.

Regional Generation

“We called up oil units as a hedge in case there is a disruption of natural gas,” Chadalavada said. “With the wind chill it feels closer to zero degrees; that’s a marked difference from recent weeks and that translates to higher demand.”

Coal plants accounted for about 671 megawatts of generation, or 4 percent, while gas plants were at 47 percent. Production from nuclear plants tends to be steady at about 30 percent of the region’s total. The balance is produced by hydro- electric and renewable power plants.

The oil units are running more often because they are more economical when winter demand tops 20,000 megawatts, said Lacey Ryan, a spokeswoman for the grid operator. During the summer these plants typically start to come online when demand reaches 23,000 megawatts, she said. Power consumption on the New England grid today may peak at 21,240 megawatts.

New England will consume about 3.54 billion cubic feet of gas today and 3.66 billion tomorrow, the U.S. Energy Information Administration said in a winter alert today. Demand may be “slightly higher” on Jan. 28, according to the report.

The average price for wholesale electricity in New England was $36.09 a megawatt-hour in 2012, the lowest level since the region’s competitive market was started in 2003, the grid operator said yesterday.

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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