Throughout the day we turn on and off lights, ovens, microwaves, computers, televisions, etc. consuming different amounts of power as we do. Have you ever wondered how power plants meet this ever-changing demand? ISO-NE stands for “Independent Systems Operator – New England; they are a non-profit organization that controls when the utility scale coal, natural gas, nuclear, wind and solar electricity generation facilities turn on to meet the current loads on the New England grid.
ISO-NE also runs the markets that determine the price of electricity. The electricity that you purchase is price hourly; the price of the electricity for this hour is determined by the most expensive generation facility that is running for that hour. ISO-NE turns on the least expensive generation facilities first and the most expensive ones last. That is why during hot summer days, when electricity demand is high, the electricity prices are the high. (Electricity prices are also high during the winter, when the demand for natural gas goes up, but this is not directly related to the ISO-NE)
The cost of fuel is a major factor to the price of the electricity that generation facilities sell to the grid. As oil and gas prices go up, the price of this electricity goes up. Solar uses sun as its fuel, and thus has a $0.00 cost of fuel. Utility scale solar generation facilities can often sell electricity to the grid for $0.00 due to the fact that they can also sell their Renewable Energy Certificates (REC’s) that are generated when renewable electricity is produced.
The way that ISO-NE determines electricity rates highlights how volatile electricity prices can be. As the prices of oil and natural gas increase, the price of electricity will increase as well. Hopefully, as more utility scale renewable generation facilities come on line, the price of electricity can be reduced; this is a long way out. In the meantime, electricity consumers are exposed to this volatility. For now, energy efficiency and generating solar electricity on site are the best ways for consumers to protect themselves against increases in electricity prices.
To learn more about how ISO-NE operates and how renewable energy will impact the grid, please see the Conservation Law Foundation Blog here.