Natural Gas Pays Off For New York

new-york-natural-gasNew York enjoyed the lowest wholesale electricity prices in over a decade last year.  For the first time since the New York power market was deregulated 12 years ago, electricity prices in the state hit record lows.  The average price per megawatt hour was at $43.23 last year, according to the New York Independent System Operator (NYISO).  In addition, about 1,400 megawatts of older generation averaging 43 years old, was suspended in favor of investing in cleaner and more efficient technology.

When the NYISO began in 1999, lower electric prices were the goal of deregulation.   The logic is that competing power plants have an incentive to invest technology that produces power more cheaply, but also reliably.  Natural gas plants and wind farms are seeing the most growth across the state, accounting for 745MW of new generation this year.  Wind generators alone were responsible for 3,302 gigawatt-hours of electricity production in 2012 for New York, and the NYISO was able to integrate wind power using a forecasting approach which predicted the best time and availability of wind resources.  As a result, reliability and output of wind generation has been inexpensive and stable.     

Cheap natural gas is a major contributor to the lower prices seen by New York State, along with other parts of the Northeast in 2012, but the competitive structure of New York’s electricity market is a primary factor as well.  As NYISO President and CEO Stephen G. Whitley notes, “[w]hile the abundance and low price of natural gas are major factors in the current price of electricity in New York, our competitive wholesale markets continue to drive efficiency and produce benefits for consumers.”

New York’s power system is operated via an auction that opts for the lowest priced power in the system.  This auction platform means that older, less efficient generation sources are less competitive as they generally are not as cost-effective  as newer, more efficient technology.  Natural gas, especially with increased production being done in neighboring states, is providing New York with low cost energy at much higher efficiency than older coal fired plants.  Stricter environmental regulations in the state also play a role in making dirtier generating stations less cost effective.

This system is clearly contributing to more efficient generation technology being brought online that will lead to savings for energy consumers.  New York’s competitive market creates a drive for innovation amongst energy companies to achieve reliable energy production at low cost and low emissions.  This is exactly the type of progress we should see across the country, not only because of environmental benefits, but because of the benefits to consumers and the added stability to the electric grid.

Jessica Kennedy
Energy Curtailment Specialists, Inc.

Jessica can be found on Twitter and Google+.

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