Observations of a Former ISO Board Member
By Barney Rush, Washington, DC
Editor’s note: Barney Rush served for nine years, until September 30, on the board of ISO-New England and is a former CEO of Mirant Europe and of an early hydrogen producer, H2Gen. He spoke in August to the Northeast Public Power Association about two intersecting existential crises affecting the power sector. The following excerpts are from that talk.
Naturally, one accumulates many thoughts over nine years. My comments today are my own personal thoughts, and I am not speaking as a representative of the ISO, its management or my fellow directors.
First let me honor your profession of serving in the public power sector.
Many of you may be familiar with the multi-volume biography of Lyndon Johnson, written (and still being written!) by Robert Caro. In the first volume, Caro uses a chapter to describe what the Texas hill country was like before electricity: the harsh and exhausting rigor of daily life. Men rising at 3 am to milk their cows by hand; women yoking themselves up to carry heavy pails of water up the hill to the home, then washing the heavy clothes by slapping them with paddles and ironing with hot coals in sheds that became furnaces in the heat. All this at a time, in the 1930s, when urban America had had electricity for over two decades.
President Roosevelt had a vision that all Americans, regardless of income, regardless of how rural their life, deserved the comfort and the freedom from toil that electricity provided. And so, the New Deal created the Rural Electrification Administration, to bring electricity to those who were not being served by utilities.
The young congressman, Lyndon Johnson, lobbied hard to bring the funds to his district that allowed the wires to be strung. The lights went on across the Texas hill country in 1938. And that year, so reports Caro, parents across his district named their newborn sons, “Lyndon.”
Serving the public, with low cost and reliable power: that is the heritage and core values of your profession.
I would also like to honor the ISO New England management team. I acknowledge that my own early background in viewing management was not very elevating: I worked at Lehman Brothers in the 1980s, where if one asked “How many Lehman Brothers partners does it take to screw in a light bulb?”, the right answer was “Nine: One to screw in the light bulb and eight to push the ladder over.”
But kidding aside, in my professional life, I have never worked with management as collegial or thoughtful, as determined to find workable solutions to the problems that must be faced, or as respectful and mindful of the views of others. It has been a privilege to work with them and with my colleagues on the board.
We as a nation face two existential crises: threats from climate change and the growth of authoritarianism.
Perhaps discussing these two together will surprise you. But New England must grapple with the impacts of both, and I would like to explore these two grave threats, and their intersection, on our power system and our customers.
I recall a New England Power Pool sector meeting in 2017, during which I asked the representatives from the transmission sector what keeps them up at night.
The answer: increasingly severe storms, and the consequent investment needed to upgrade distribution lines and maintain reliability. Of course, these concerns are only one facet of the overall problem, which includes severe heat, rising sea levels and drastic changes to the survival of plants and animals around the globe.
I have traveled my own journey on the imperative of dealing with climate change: from recognizing it as an issue, to taking it seriously, to regarding it as a matter of urgency.
But urgency must not obscure realism.
First, realism in respect of geography: The only solution is a world-wide solution. I recall listening to a government official of Rhode Island say that the people of his state really cared about climate change because of the looming danger of sea-level rise in Narragansett Bay.
I thought to myself — what possible difference can Rhode Island make on its own to the height of water in Narragansett Bay? — and that the Indian solar company that I chaired at the time, Azure Power, probably had greater scope for helping due to its efforts to decarbonize a rapidly-growing major country still dependent on large thermal coal plants.
Recognizing the need for climate change to be addressed on a global basis can breed cynicism. Why bother about our small piece of the planet, when it amounts to so little of the total that must be transformed? Yet clearly, decarbonizing New England remains our job. All regions of our country must do their part, not only to clean our national economy, but to demonstrate by example.
No one should doubt how difficult it is for large emerging markets to decarbonize; yet we also know that whatever influence we may have on the policies of other nations, that influence is nil without the solid evidence of our own commitment.
Second, we must be realistic in terms of time.
I have no doubt that all of you know how daunting the challenge is. Most of the New England states have had policies in place for a decade to incent more renewable energy. Yet after this time, only about 10% of the power on our grid, along with rooftop solar, comes from these sources. And looking ahead, construction of New England’s offshore wind projects — as major an effort as that is — is only one of many requirements: finding land for onshore wind and solar, the years ahead to develop technologies such as modular nuclear reactors and long-duration storage, and construction of thousands of miles of additional transmission lines.
The Future Grid Reliability Study, just released by the ISO at the end of July, puts these challenges into stark relief. New England currently has 5,600 megawatts of wind, solar and storage capacity. The deep decarbonization scenario will require between 73,000 and 90,000 megawatts of such capacity — 15 times as much as we have today.
To meet the vast increase in the demand for storage, the world must rapidly scale up production of such essential inputs as cobalt and rare-earth elements. The recent study on storage from MIT highlights this challenge: production of these elements will have to increase at sustained compounded annual growth rates that are two to four times what has been achieved in single years in the past.
We would all wish to find ways to speed up the transition. But we should also be aware that the faster the transition, the more it must rely on technology that is commercial today, especially wind and solar. It takes time to nurture new technologies such as small modular reactors that I hope will have great success. There is a limit to compressing the schedule of research and development, certification and testing. Some of my colleagues on the ISO board have made this point succinctly: “Nine women cannot make a baby in a month.”
Such sobering thoughts do not dampen my optimism that we can substantially decarbonize our economy. But by when? By 2030, as some politicians have proclaimed? Clearly impossible. By 2050? That seems plausible and would be a stupendous achievement.
If the timeline I offer seems a low bar to some, let me note the danger of proclaiming targets that are patently unrealistic. For when such targets are not met, public officials lose credibility and hence the confidence of the citizens they lead, when, in fact, it is vital that officials retain the confidence of the public for a transition that is so challenging and costly.
We must also recognize that while pursuing this goal, reliability must be maintained, even as we greatly increase the amount of electricity we generate and do so with an increasing scale of intermittent resources, but let’s be clear.
The importance of maintaining reliability is not a counterweight to the need to decarbonize. To the contrary, maintaining reliability is the handmaiden of decarbonization, for if the public were ever to believe that we must choose between reliable supply of what our lives depend upon and a further decrement in carbon emissions, the public’s support for the transition will plummet. Further, we will jeopardize the people’s interest in decarbonizing two other sectors — transportation and home heating — that now emit more carbon than the power sector.
Therefore, let us focus on incenting zero-carbon resources and the means to store power from them and thereby reduce the use of fossil plants, but not criticize the presence and need for these fossil plants themselves.
To encourage this transformation, it is important to hold a healthy regard for market forces.
Think of what market forces have already achieved. I remember, when I was a power industry executive in the 1990s, that we believed a natural gas price of $10 an MMBtu was a given. But then came the massive growth in fracking that led to the price collapse, and this, in turn, propelled the massive switch from coal to gas-fired generation around the country, cutting carbon emissions per kilowatt hour in half at every new plant that replaced an old coal station.
We had come to believe that the era of low gas prices would endure, with resulting low marginal prices in our energy market. We have therefore been grappling with the issue of how key regional assets, such as our nuclear power plants, would remain profitable and serve our needs.
But suddenly, we now face a dramatic increase in natural gas prices. A war-induced blip?
We should recognize that perhaps the low prices we enjoyed were the result of both plentiful supply of fracked gas and the constraint on exporting LNG, suppressing demand. That demand constraint has now been relaxed, and I expect that sustained worldwide demand for LNG will induce the construction of more export terminals, and hence provide steady uplift to domestic pipeline gas prices.
No doubt this price increase will induce more gas production, but we may still have a new general equilibrium that leaves prices well above the levels of this past decade. And this factor alone will provide a powerful incentive for renewables and other non-fossil sources of power.
To put this in perspective, economists have long thought that a reasonable price on carbon, if one were to be established, would be approximately $40 a ton. This would cause power prices to increase approximately 1.5¢ a kilowatt hour if a modern combined-cycle plant were setting the marginal price.
Yet the increase in natural gas prices over the past 12 months — from $3 to $8 an MMBtu — raises energy prices by more than 3¢ a kilowatt hour — double the impact of the oft-cited carbon price figure.
In sum, we may be moving from an era of cheap gas — which incented a wave of investment in gas-fired generation that drove national carbon emissions down — to an era of more expensive gas that will incent further investment in zero-carbon resources across the country, and thereby propel another steep decline in carbon intensity.
This is not to suggest that subsidies, incentives and market design do not matter: these instruments of policy and tariff matter a great deal. Just that we should remain both humble and nimble in our work and remain aware of the larger forces at play.
ISO-New England has an ambitious program of additional market design reforms, all designed to incent the provision of power that is steadily cleaner, always reliable and responsive to consumer concerns regarding costs.
As hard as it will be to launch these programs, my greatest concern is not our ability to do so, but rather the frictions that may not allow supply to respond to the carefully considered price signals we send.
Here are some examples.
A market structure puts pressure on the owner of a gas-fired power plant to ensure that there is enough fuel for a cold winter to ensure reliability. How can the owner respond? Will the community and authorities permit the owner to build a distillate oil tank as a back-up source of fuel in the event the natural gas supply is constrained?
The great disadvantage of wind and solar is the vast amount of land required for utility-scale projects. A solar project with only a 20% capacity factor requires about six to seven acres per megawatt. The amount of additional solar capacity envisioned in the ISO-New England Future Grid Reliability Study would require over 100,000 acres of land, just for solar, between now and 2040. How much local opposition will there be for the land required for sizable arrays?
Large-scale expansion of renewable energy and accessing hydro power from Canada require significant additional transmission lines. Easy to permit and build? Hardly. We need look no further than the successful effort to stop the Northern Pass transmission line in New Hampshire and the successful effort so far to stop the New England Clean Energy Connect transmission line in a remote part of Maine.
Those who oppose such projects are no doubt sincere. Yet clearly we will not make the progress needed to decarbonize if significant projects are successfully stopped by local opponents saying, “Yes, I take climate change very seriously, but not this project, not here.” And we will not have the reliability we need if fuel storage projects are successfully stopped by local opponents saying “Yes, I understand we need to keep the grid reliable, but not with any fossil fuel.”
Local fervor can become collective hypocrisy. We will proclaim the urgency of decarbonization and the need to maintain reliability, but not construct the infrastructure and plants we need to achieve our goals. This, in my view, is a most urgent public discussion that we must have.
The world has experienced an upheaval in the past six months that compels comment. We face another existential crisis — very different from climate change — but just as ominous: the renewed rise of authoritarianism.
The contest between democracy and autocracy has long been noted. Let me quote from Alexis de Tocqueville, in his magisterial account, Democracy in America, written in 1835:
There are at the present time two great nations in the world. I allude to the Russians and the Americans. Both of them have grown up unnoticed; and while the attention of mankind was directed elsewhere, they have suddenly placed themselves in the front rank of nations, and the world learned their existence and their greatness at almost the same time.
The American struggles against the obstacles that nature opposes to him; the adversaries of the Russian are men. The former combats the wilderness . . . ; the latter, civilization with all its arms. The conquests of the American are therefore gained by the plowshare; those of the Russian by the sword. The American relies upon personal interest to accomplish his ends and gives free scope to the unguided strength and common sense of the people. The Russian centers all the authority of society in a single arm. The principal instrument of the former is freedom, of the latter, servitude. Their starting point is different, and their courses are not the same; yet each of them seems marked out by the will of Heaven to sway the destinies of half the globe.
I feel chills when I re-read this passage. I first read it in college, in the early 1970s, at the height of the cold war, and marveled at de Tocqueville’s prescience. I reread it in the 1990s, when we thought we could feel safe that these words had lost their relevance. But now, I read them again, with horror and foreboding. Who would have believed that today, a major European power would unleash a brutal assault on a peaceful neighboring country?
But also, while we fervently hope that Ukraine will prevail, and many believe that Russia has lost its superpower status, we must also contend with the rise of China — not as a nation joining the ranks of developed market economies organized by the rule of law, but as a highly centralized autocracy, with state-directed enterprises and an omnipresent surveillance of its people that even George Orwell could not have imagined.
And finally, we must be aware of a creeping rise of authoritarian instincts even within democratic states — such as Hungary — but also, frighteningly, here in our own nation as well.
How does this existential threat affect our world of providing electric power? In three ways.
The first is the immediate crisis caused by Russia’s invasion of Ukraine and Putin’s decision sharply to curtail the supply of natural gas to Europe. This of course has led to the steep surge of LNG prices and heightened the risk of New England not being able to procure LNG supplies it may need this coming winter. At times last winter, we faced pipeline gas and LNG prices of over $20 an MMBtu, resulting in electric prices of over $150 a megawatt hour. Europe is now paying $60 an MMBtu for LNG in the summertime. Could these be the prices that New England generators will have to pay this coming winter, and perhaps the next, in competition for cargoes that will otherwise go to Rotterdam?
If faced with such prices for natural gas, the ISO markets will react to clear generators with lower-cost fuels, primarily oil. This could well require state and local authorities to provide necessary waivers for these plants to produce higher levels of carbon emissions. I expect that as strongly as New England wants to reduce carbon emissions, residents will want officials to mitigate such material price increases in any way possible. It will be vital that every oil- and dual-fueled unit on our system be well maintained and ready for this winter. The additional 1,200 megawatts of Canadian hydroelectricity under discussion would also substantially reduce the region’s reliance on LNG, mitigating price spikes and enhancing reliability.
Beyond the impact of the upcoming winter, we can expect that the Ukrainian war will cause a seismic shift in the perspective and policies of western Europe. Russia will not be trusted for a generation or more, and governments will be determined to free themselves from being held hostage to Russian oil and gas. We can therefore expect even greater determination in Europe to advance towards a zero-carbon economy, driven now by a national security imperative, as well as climate change.
Europe’s greater push will also heighten the near- and medium-term competition for the inputs to a clean economy and hence, at least initially, could affect the pace of transition that we wish to undertake in New England. There will be added pressure on all to resolve supply-chain bottlenecks.
The second impact of authoritarian government is associated with China.
China today manufactures 70% of the world’s solar panels and, as importantly, is the leader in solar research and development. China mines 90% of the world output of rare-earth elements, so vital to decarbonization technology. With the values and attitudes that the Chinese leadership espouse, with the geopolitical threats that are emerging, can we be comfortable pursuing a fast-track commitment to decarbonization, based on such a supply chain?
Other nations have already begun taking defensive steps. The Indian solar market is burgeoning with virtually all the panels imported from China. Therefore, the Indian government, starting three years ago, began to impose what has become a highly dirigiste industrial policy that requires Indian solar developers to purchase from domestic manufacturers.
Such considerations have now come to our shores, as evidenced by both the CHIPS Act to promote domestic manufacturing of semiconductors and the Inflation Reduction Act in which tax credits for electric vehicles are tied to batteries with high percentages of content from the US and other countries deemed safe and in which tax credits are also offered to spur manufacturing of solar panels in the US.
What more must we do to permit unfettered progress towards decarbonization?
Substantially reducing reliance on China will be costly and time consuming, and is likely to slow, at least initially, the speed of our transition. But we cannot allow China to do to us some day what Russia is doing now to western Europe.
Finally, we must look at our own nation. How do we combat our own authoritarian instincts? How do we abate the anger so many feel towards government? How do we reduce the despair that many feel at our seeming inability to solve major problems?
An important part of the answer can again be found in de Tocqueville:
The strength of free nations resides in the township. Town institutions are to freedom what primary schools are to knowledge: they bring it within people’s reach and give [people] the enjoyment and habit of using it for peaceful ends. Without town institutions a nation can establish a free government but has not the spirit of freedom itself . . . . In America, not only do institutions belong to the community but they are kept alive and supported by a community spirit.
Let me enlarge the scope of de Tocqueville’s meaning: How do we behave as individuals, working within the local and regional institutions that we touch every day. Do we strengthen those institutions or weaken them? Do we advance democracy or abet its retreat?
What is required of all of us is civility, transparency, tolerance and a commitment to deal with facts.
We must avoid demonizing one’s perceived opponent and thereby torquing the anger of the public.
Instead, we need to explain the issues that we are all working hard to resolve. With understanding, we can find common ground, make necessary compromises and forge solutions.
One of the major reasons it has been such a privilege to serve on the ISO board has been the opportunities to observe the high level of discourse among the stakeholders of our power system. But passions and perhaps COVID-induced separation have cracked our comity.
Our community can do better. With dialogue and understanding, we will have a far better chance of enhancing confidence in our institutions, strengthening our democracy, and building the broad, deep and enduring support for the policies of decarbonization that our region, our nation and our planet require.