Nov. 5, 2002 — The wholesale price of electricity in the Northeast is low compared to historical levels, and is expected to stay that way for several years to come according to Henwood’s recently released study of Northeast electricity and gas markets.
“This is good news for buyers and bad news for sellers,” explained Gary L. Hunt, Henwood’s Vice President of North American Consulting. “The reason is simple: there is too much supply relative to demand, but transmission congestion prevents it from getting to submarkets most in need. The winners under these market conditions in the Northeast are power generators who are well hedged with credit-worthy counterparties for much of their production capacity. Generators who stayed long in hopes of capturing the upside in the spot markets are facing significant financial stress. Prices are, however, expected to rise rapidly in 2006-2007 in response to falling reserve margins.”
Most areas within the Northeast region, with the possible exception of Quebec, have adequate reserve margins through 2010. “There will be high reserve margins in most areas in the near term, except for a few pockets in New England, New York City, and Long Island, where there will be a need for new generation capacity as early as 2004,” commented Mark Griffith, Henwood’s principal investigator for the study.
Henwood’s Power Market Advisory Service provides regional wholesale-expected prices and fundamental analysis of price formation across every regional power market in North America. The Northeast market study further examines the load centers located along the Eastern seaboard and the resources necessary to serve that load which are generally located some distance inland and away from the load centers.
“As a result, the Northeast experiences chronic congestion along critical paths in the grid. Isolated load pockets in Long Island and New York City, for example, are short even when plenty of low-cost capacity is available elsewhere in the region,” explained Griffith.
FERC’s proposed Standard Market Design and the formation of regional transmission organizations (RTOs) have the Northeast region at a crossroads. NYISO has announced its intention to spend substantial sums on software development and has recognized that its hour-ahead and real-time market software need to be overhauled even if the New York market stands alone from New England and PJM.
Meanwhile, ISO-NE is proceeding at a frantic pace to implement locational marginal pricing (LMP) and a congestion management system as soon as possible. In the meantime, the integration of the two ISOs into a broader RTO covering the entire northeast is proceeding.
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