Vermont’s natural gas paradox and its German parallel

We don’t want to keep picking on Vermont. (Maybe we do. The story sort of writes itself.)

But the latest developments there are more interesting chapters in a state that wants to be the greenest in the nation, but keeps running into what some people there might see as “unintended consequences.” But they are utterly predictable to anybody who understands energy tradeoffs.

So here’s a summary of the last few weeks in the Green Mountain State:

  • Entergy announced August 27 it is closing the Vermont Yankee nuclear plant, which provided about 70% of the state’s electricity. One of the reasons cited by the company: the availability of natural gas to produce electricity, with the fuel available in greater quantities because of fracking in the nearby Marcellus, and elsewhere.

That was followed by much celebration from anti-nuclear forces, who chose, in most of their writings, not to acknowledge the stated role of natural gas in the plant’s demise. (Here’s one example.) This way, the anti-nuke activists could make it look like the shutdown was entirely their doing — and to be honest, a lot of analysts think Entergy’s statements on the closure softpedaled the possibility that the company just didn’t have the stomach for the politics anymore — and ignore the fact that what has occurred is an opening for natural gas to grab market share, displacing emission-free power for a CO2-emitting fossil fuel. But the activists don’t see it that way; they see renewables as being ready to fill the nuclear-free gap.

  • This has absolutely nothing to do with Vermont directly. But right about the time that Vermont dealt with the news that it needed eventually to replace all these emission-free atomic megawatts, the German magazine Der Spiegel – generally not considered a tool of the right wing — came out with a series of stories about the growing German crisis in its retail electricity rates. Its most damning description: electricity in Germany is becoming a “luxury.”

According to Platts’ German power analyst Andreas Franke, these pricing issues are not the result of the country’s decision to phase out nuclear power, which has not yet begun in earnest. But rather, it’s because of the German decision to turn increasingly to solar and wind, and the pricing and tariff rules that are needed to make that work. The result: rising electric retail prices. (And the Der Spiegel pieces are not the first time these issues have been raised in Germany. But it definitely is the most widely-circulated indictment).

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The potential similarities between where some in Vermont want to go, and what Germany already has begun to implement, are obvious: a nuke phaseout, but with a greater reliance on renewables to pursue lower-carbon emission power.  But one difference is that Vermont’s advocates talk about “cheaper electricity.” That isn’t going to be happening much in Germany.

And Andreas noted, even as this push to renewables is ongoing, coal use in Germany actually is on the rise. He cites two main reasons: the drop in the price of EU carbon allowances and the decline in the price of coal, so that burning coal to produce high-priced electricity is “very” profitable. One other analogy to Vermont: similar to the fact that the Marcellus and its cheap gas is in Vermont’s neighborhood, Germany has an ample supply of cheap lignite.

So that raises the issue for Vermont: do you want to go down that German road and run the risk of higher retail electric rates? (To say nothing of whether the tree-lined ridges in the state are going to feature turbines and panels rather than pines and maples.) Or do you want to fill the Vermont Yankee gap with electricity powered by natural gas, either in-state or purchased across state lines, since the availability of that gas was cited by Entergy as a reason for the nuke plant’s closure?

And then we circle back to the Vermont paradox: it has banned fracking in its borders, which on a practical basis isn’t such a big deal because it is not known to have significant shale deposits anyway. But even if it ramps up its renewables program quickly, it’s still going to need something to substitute for the lost nuclear fuel, and natural gas is the easiest way to get there. But the natural gas increasingly will be from fracked wells in the Marcellus rather than from conventional sources in western Canada.

The fracking process was blasted by the state’s governor, Peter Shumlin, as “inject(ing) chemicals into groundwater in a desperate pursuit for energy.” He made that statement when he signed the fracking ban in 2012.

But as we’ve also pointed out, one of the biggest boosters of Vermont using more natural gas is…Peter Shumlin. And in this story just a week ago in Vermont’s biggest newspaper, the governor again talked about the expansion of natural gas capability in the state (which The Barrel wrote about here), and that he is fully onboard with that idea.

The Vermont paradox — the state’s desire to use more natural gas even as it has banned  fracking as an intolerable evil — was always amusing to watch. But it took place against a backdrop where most of the state’s electricity was being generated by an emissions-free nuclear power plant. Vermont Yankee provided the state the luxury to be low on the emissions scale, have adequate supplies of power, while simultaneously criticizing fossil fuels and planning for a renewables future.

That luxury is going; hard choices await.


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Comments

  1. Simon at October 17, 2013 10:37 pm

    Claude Boucher seems to really know about the Vermont Generation Stack.

    Here is my own perspective.

    Vermont is small part of the ISO-NE where prices become extremely volatile in the Winter. The main driver is the region’s dependence on gas-fired generation. Today the region is powered by over 50% of generation from these combined-cycle units.

    This trend will continue to move further into gas dependence in the next few years with recent announcements of retirements of other fuel sources (nuclear/coal). Vermont Yankee will retire in the red winter (late 2014). So pricing depends heavily on Algonquin Gas prices as the generators feed off of that pipeline and must pay whatever price in order to supply the generation. On a normal day the basis to NYMEX Henry Hub is almost flat, but last winter some days the delivered cost of Algonquin reached $20 – $40! and the party is just beginning.

    Now about the Green Power, I agree with the direction of John Kingston.
    I will now have to add NE-ISO to MISO and Germany.

    Read the Prophecy:

    How Wind energy removes fossil fuel power plants in the Market Structure.

    http://jacquessimon506.wordpress.com/2013/05/07/1264/

    Renewable will continue to undercut Marginal Prices at Peak-Time, “retiring” “removing” the conventional stack around VT. VT will increasingly rely upon HQ’s Hydro-Power exports for its Baseload need (and I think it’s not just a transition).

    SJ

     
  2. archaeopteryx at October 8, 2013 2:33 pm

    Base load power to replace a nuke, may be had through another nuke (a little late for that, or coal; Gas for base load power is fine in …Qatar perhaps. One thing is certain: Never, ever, anywhere in the world, including Germany or Denmark, have “renewables” (other than hydro) contributed anything but price increases (and fat subsidies). They cannot substitute base load power, and their claims to saving material conventional fuel are anywhere from exaggerated to bogus. Are there any engineers left in Vermont?

     
  3. John Kingston at September 16, 2013 12:57 pm

    Miner49, you can’t make a blanket statement about the break-even price of natural gas without taking into account the value of the associated liquids. If the gas is coming from an area of mostly dry gas, like the Haynesville, current prices are a disaster for the producers. But the math is completely different if you’ve got a significant output of NGLs, which most Marcellus wells do.

     
  4. MIner49er at September 16, 2013 12:30 pm

    It’s ironic and sad that energy users continue to assume that gas producers will cheerfully continue to sell gas at a loss over the long term, just to satisfy their political ends.

    Gas producers’ breakeven price is about $5.00/MMBTU. Electric generators continue to add capacity on the assumption they can buy for $3.50 over the life of those plants. Seems irrational.

     
    • Steven Danis at November 22, 2013 11:20 am

      I would think that the break even price for natural gas varies considerably. The average for the entire US might be 5 dollars, but there are places, some quite close to Vermont, that can produce for less and still make a profit. Most notably in the most productive dry gas regions of the Marcellus Shale in Pennsylvania, natural gas is rated by most analysts of the industry to cost less than 3 dollars per thousand. It’s very hard to justify either nuclear power plants or renewables with their high capital cost per unit of capacity in the face of that kind of competition.

       
  5. Amory B. Lovins at September 15, 2013 3:07 pm

    An unusually clear review of German industrial and household electricity prices has just been published by the estimable Craig Morris in Freiburg, and should put this matter to rest:

    http://www.renewablesinternational.net/overview-of-german-power-prices/150/537/72836/

     
  6. Michael Mann at September 15, 2013 10:26 am

    Thank you, Mr Kingston for pointing out the obvious, the closing of Vermont Yankee is a lose-lose situation for the environment and the people of Vermont. They just don’t realize it yet.. They don’t seem to know that 600 well paying careers, a tax base and community services are going away. They also seem to think there is a magic line around Vermont and the dirtier electric they will be buying won’t effect their environment because it is being generated elsewhere.. it’s sad because some of them actually thought they were pro-environment when really they are just anti-nuclear.

     
  7. Mary Gerdt at September 15, 2013 8:27 am

    I am a Vermonter opposed to Canadian owned Vermont Gaz’ unnatural gas pipeline extension. New York’s International paper wants nG. New York said no pipeline. Vermont said no frackin. Shumlin let Canadian’s buy all our power companies and now wants gaz pipeline. The route VGS is choosing goes through organic gardens, backyards up and down hill and dale. Without the landowner getting a hookup…then under Lake Champlain. we are common people fighting Goliath.Yankee was closed by being lawyered to death. Wind, solar, premium cost and they get a pass. Welcome to Vermont.

     
  8. DocForesight at September 14, 2013 8:16 pm

    Has Gov. Shumlin been called on to defend his accusation that fracking injects chemicals into the ground water, when the latest Federal study refutes that as patently false? I would think that would be worthy of public discussion – the Governor actively spreading a falsehood (aka “lie”) for whatever reason that serves to misinform the public he is sworn to serve.

     
  9. Bob Stannard at September 14, 2013 6:52 pm

    Well done Mr. Lovins. Mr. Kingston, it appears, has bought into mantras provided by the pro-nuke industry.

    He offered inaccurate & misleading information. Thank you for clarifying the record.

     
  10. Amory B. Lovins at September 14, 2013 2:36 pm

    Unfortunately John Kingston has been taken in by a slick disinformation campaign to which Der Spiegel contributes prominently. If he will kindly read my two blogs on what’s actually happening in Germany:
    http://blog.rmi.org/blog_2013_04_17_germanys_renewables_revolution
    http://blog.rmi.org/separating_fact_from_fiction_in_accounts_of_germanys_renewables_revolution
    he’ll find that his description is quite at odds with the economic and political facts. A few key points:
    – Renewables have sharply reduced German wholesale electricity prices, to the great benefit of the big industries that pay those prices. This why Germany is the only country that’s a consistent net exporter to France; why German wholesale prices compete well within Europe, drawing some in-migration of energy-intensive industries; and why renewables are hurting the German big 4 and EU big 9 utilities’ profits, driving the anti-renewables disinformation campaign.
    – Household prices, which are half taxes, have been rising because the renewable surcharge, Eu0.053/kWh in 2013 and projected to rise by another Euro cent in 2014, (a) reflects higher-than-expected photovoltaic purchases, (b) is boosted by nearly half by a rapidly expanding set of politically driven industrial exemptions, and (c) isn’t yet offset by the declining wholesale prices because of contract-maturation lags, though those should start to work through by 2014. Spiegel wrongly claimed a 20% rise; that’s 20% of the renewables surcharge, or 4-5% of the total tariff. Household electric prices are rising less than gasoline or heating-oil prices, and the surcharge’s effect on total household energy costs is small, on household total expenditures <400k renewable jobs are widely distributed by geography and skill, strengthening the whole German economy and polity. The “German business” sentiment trumpeted by Spiegel and by such commentators as Nick Butler does not reflect the views of the vast Mittelstand of small and medium-sized enterprises, nor of most local utilities (Stadtwerke) or the hundreds of “virtual utilities” that make markets in clean energy; they like the current policy, especially as it reduces the power of the four giant utility monopolies that have long milked the Mittelstand and dominated national energy policy, to its detriment.
    – Spiegel, by the way, also continues its longstanding attack on the supposed costs and risks of relying on “intermittent supplies of wind and solar power which require expensive back-up capacity”. All untrue. Wind and photovoltaics are variable but highly predictable—the four-day wind forecast is more accurate than the four-day demand forecast. The “intermittent” supplies requiring costly big reserve margins and spinning reserves are the big fossil-fueled and nuclear plants, because they fail unpredictably in GW blocks within milliseconds, often for weeks or months. Diversified portfolios of variable renewables don’t have that ungraceful failure mode.
    – Germany has not subsidized photovoltaics since 2004; the PV feed-in tariff, well below the retail rate, declines 1.8% per month in line with PV costs and is capped at 52 GW (Germany has installed ~35 GW, rising ~7-8 GW/y). Renewables in Germany are transparently funded through the renewables surcharge, using no general tax revenues. The surcharge can be avoided by investing (as little as ~$500) in your own renewables that earn a decent real return through the 20-y feed-in tariff. Over half of German renewables are owned by citizens and their coops or communities, vs. ~2% in the US, which favors ownership by large corporations. One of the explicit aims of the German Energiewende is to diversify ownership and control of energy.
    – As Andreas Krämer has pointed out, the current German policy provides substantial net benefits to the whole German economy, however inconvenient competition may be to the incumbent monopolists. The policy is broadly supported and will continue at its steady, moderate pace with modest pragmatic fine-tuning.
    – Germany’s uptick in coal-burning is temporary and will be short-lived (see my blogs for details and references).
    – Germany is meeting or beating its Kyoto CO2 reduction targets at a profit and is expected to continue to do so. Its highly successful replacement of nuclear power with efficiency and renewables is an excellent example and model for others.

    The Vermont part of Mr. Kingston’s story left out two important ingredients: the excellent work of Efficiency Vermont and other efforts in reducing electricity demand (now a nationwide trend—U.S. weather-adjusted electric intensity fell by a remarkable 3.4% in 2012 alone); and that according to Entergy’s own announcement, Vermont Yankee was tipping from breakeven into money-losing operation. My Bulletin of the Atomic Scientists analysis in April had anticipated this now-widespread trend (http://www.rmi.org/Knowledge-Center%2FLibrary%2F2013-09_BulletinAtomicScientists): many if not most U.S. reactors are now uneconomic to operate, so in the first two-thirds of 2013, 14 operating or planned units were terminated.
    It would be refreshing if more commentators give Vermonters due credit for making the wise strategic energy choices they’ve been making so far, and did their homework before echoing tendentious propaganda about German energy.

     
    • jim at September 17, 2013 11:13 pm

      “the four-day wind forecast is more accurate than the four-day demand forecast.” Okay, but to be a reliable source of energy both forecasts must be close to its prediction.

       
  11. Bob Stannard at September 14, 2013 12:49 pm

    When you begin with a premise that is false there is little point in continuing to read your stuff.

    VY never, ever provided 70% of Vermont’s electricity. 70% of power produced in Vermont came from this plant but most of the plant’s power was sold out of state.

    This is a simple fact that you were either too incompetent to get straight or like others who constantly make this statement, intentionally misleading people.

    Either way you have no reason to be taken seriously.

     
    • Bob Stannard at September 14, 2013 2:23 pm

      Vermont has not purchased ANY electricity from the VY plant since March of 2012 when our contract expired. We found cheaper power for longer terms elsewhere. VY has not been relevant to Vermont’s electrical needs for a year & a half.

       
  12. Bill Woods at September 14, 2013 12:34 pm

    “… [Germany]’s decision to phase out nuclear power, which has not yet begun in earnest.”

    I wouldn’t say it hasn’t begun. With the closure of several reactors in 2011, Germany’s nuclear production dropped from 133 TW-h in 2010 to 95 in 2012.

     
  13. John Kingston at September 14, 2013 6:38 am

    Thanks for your comments, Claude. A couple of other points/questions:

    –If Vermont were to fill the gap from Quebec, would that be mostly hydropower? Because if that is the case, then replacing emissions-free power with emissions-free power–an even swap–gets done without the need to blot the Vermont landscape with turbines…lots and lots of turbines. What’s interesting, though, is that I haven’t been able to find any comments by people noting that hydro can replace Vermont Yankee. So even though it might happen, it doesn’t appear to be on the environmentalists’ radar.

    –With so much available Marcellus supply, how long before investments are made to carry that supply to a larger degree into New England, where it’s needed? Shumlin’s advocacy of greater capacity on the state’s system can be seen as just one part of such investment. It seems inevitable there will be more. So the constraints you talk about are real, but are they forever?

     
    • Bob Stannard at September 14, 2013 2:27 pm

      We replaced the 250mgw from VY with power from Hydro-Quebec & Seabrook. 26 year contracts at a better price. VY produced 650mgw. It sold 400 outside if Vt.

       
  14. Claude Boucher at September 13, 2013 8:30 pm

    Kingston’s criticism is misdirected. Instead of talking about Vermont, he should discuss New England’s energy balance, where his points make more sense. If you take the six states as a whole, the shutdown of Vermont Yankee (VY) will significantly increase the use of natural gas in generation, which is already a problem considering the fact that almost half of NE 150 TWh/yr comes from this power source. ISO-NE has already identified this heavy reliance on gas in the winter months as a major problem, since power generators already compete with gas distributors for the constrained pipeline capacity. See the last few NPCC/NERC winter reliability assessments for the warnings.

    As for Vermont, it is in a somewhat different position: part of ISO-NE, but a small player in the market with little homegrown generation (except for VY, located in the southern tip of the state). Its demand is quite small: 6 TWh/yr, and gets a third of it through the HVDC interconnection with Hydro-Québec at Highgate, VT (217 MW). Peak demand in Vermont rarely reach 1,000 MW. Since last year, GMP has no contract with VY, but buys some nuclear power from the Seabrook nuclear power plant in New Hampshire.

    The state’s largest utility is Green Mountain Power, a subsidiary of Quebec’s Gaz Metro. GM also controls Vermont Gas System, the sole natural distribution system, VGS has 40,000 customers in the northern part of the state and gets its gas from Alberta, not the Marcellus play. So they face the same supply constraints as Enbridge’s Union Gas and Gaz Metro with regards to the proposed conversion of the TransCanada pipeline. But in the case of Vermont, the tight supply is a minor problem, since the market share of gas in the state is relatively small (that may explain why gov. Shumlin wants more gas pipes in the ground).

    Going back to electricity, there is no question Vermont could buy more power from its northern neighbor. In late 2012, the Quebec Régie de l’énergie (Energy Board) a $95M capital budget to significantly upgrade the Saint-Césaire-Bedford line (20 mi north of Highgate) to a double 230 kV line. The line is scheduled to be commissioned in the fall of 2014 but will “temporarily” be operated at 120 kV. As a reminder, the recent 1,250 MW back-to-back Quebec-Ontario interconnection is a double 230 kV line. And 1,250 MW would be more than enough to keep the lights on in Vermont for quite a while, provided an overhaul at Highgate and some upgrades of the Vermont grid.

     
  15. Ron Wagner at September 13, 2013 5:33 pm

    Exactly right. Germans are beginning to see the light. Word gets around the world quickly too. Please see Useful References on The Natural Gas Revolution: https://docs.google.com/document/d/19Yf0MWpo91vrlu-mmJtjB1ERukjJo5W41oi4RZVQBug/edit

     

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