Power Plant of the Week - Fore River Generating

Anyone who lives on the South Shore of Massachusetts knows the Fore River Generating plant. It's on the east side of the Fore River in Weymouth, MA, immediately south of the Rt. 3A bridge. The plant is a modern combined cycle facility that consists of two natural gas combustion turbines that both feed a steam turbine. In total, the plant has a summer capacity of approximately 700 MW and is run as a baseload or intermediate load following plant depending on natural gas prices. The natural gas comes to the plant via a lateral from the Algonquin natural gas pipeline, but the facility can also burn distillate fuel (a.k.a. No. 2) when natural gas prices are high or supplies are unavailable. Its environmental permits limit oil burn to approximately 720 hours annually, but this flexibility is extremely important to the ISO-NE grid for reliability.

Photo from Exelon website available  via this link

Photo from Exelon website available via this link

In approximately the mid 1920s, the current site was developed by NStar predecessor company Boston Edison as the Edgar station. This was a coal fired unit supplemented with smaller oil fired turbines. Boston Edison retired the Edgar station sometime in the 1970s and the site was underutilized. In the mid-1990s, merchant generator Sithe Energies purchased the property when Boston Edison was obligated to divest its generating assets as part of electric industry restructuring.

Deregulation has been a long strange trip for many generating assets in ISO-NE and Fore River is no exception. Sithe Energies acquired the property from Boston Edison along with several other properties like the Mystic Generating Station in the late 1990s. It navigated the formidable Massachusetts permitting process and secured approval from the Energy Facilities Siting Board. You can review the final decision of the siting board here and it's an interesting read for several reasons, but one item that jumps out is the focus on CO2 emissions and discussions around mitigation strategies. In the photo below, you can see the plant as it exists today, with the oil tank, Rt. 3A to the North, and the power lines leaving the property to the south.

Aerial photograph taken from Google Earth on 2/4/14

Aerial photograph taken from Google Earth on 2/4/14

Sithe contracted with Raytheon's Engineering & Construction Group to build the plant, but midway through the project Raytheon sold this division to the Washington Group......who subsequently went bankrupt. Luckily, Sithe's contract required Raytheon to ensure project completion and Raytheon was obligated to finish construction which they did. Sithe Energies was purchased by Exelon and set up as a merchant generation subsidiary. Unfortunately, this Exelon subsidiary ran into serious financial problems in 2003 and Exelon handed the Fore River plant to its various creditors.

The creditors sold the Fore River plant to US Power Generation in 2005 who operated the facilities under the Boston Generating Co. subsidiary. The shale gas revolution wasn't kind to Boston Generating as they were heavily leveraged in a falling price environment and they were forced to declare bankruptcy in 2010. There are still some very angry creditors from this event. Google "Boston Generating Creditors" and you'll find plenty of info.

Constellation purchased the Fore River Generating station out of bankruptcy and Exelon merged with Constellation in 2011, reuniting the plant with its original owner.

This plant is a critical part of the ISO-NE electric grid and its dual fuel capabilities have been especially valuable during December 2013 and January 2014 when natural gas supplies have been scarce. One downside of the dual fuel capabilities of this facility is that distillate oil is delivered by barge to the tanks onsite, which requires the Fore River Bridge to open for extended periods of time. If you've ever had to sit through a bridge opening on 3A and deal with the resulting traffic, you know that it's no fun, but these bridge openings are the cost of fuel redundancy that gives us a reliable power grid. The MA Dept. of Transportation announces bridge openings on its Twitter feed at @MassDOT.

Time to Dust Off Your Dual Fuel Operational Procedures

Based on the events of the last two weeks, it looks like the Winter of 2013-2014 is going to be a wild ride in New England. You're probably tired of hearing this by now, but natural gas pipeline constraints coupled with an electric grid reliant on natural gas results in scarcity and high prices on the coldest days when space heating load and electric generators are competing for the same supplies. Last winter, there were several days where the spot price of natural gas exceeded the cost of Nos. 2 and 6 fuel oil and we discussed that in a prior blog post. For customers with dual fuel capabilities, it was actually more economic to burn oil than natural gas on many days and we expect that to be the case this winter as well. 

The graph below shows natural gas spot prices on several major pipelines serving the Northeast U.S. The most important feature in this graph is that all of the New England delivery points spiked in the last few days, while prices west of the Hudson River were much more subdued. This bifurcation of Northeastern gas markets is a recent development and is largely driven by the increase in gas supplies from the Marcellus which can reach the mid-Atlantic, New York, and southern Ontario, but just can't seem to get into New England in sufficient volumes.

Dec 13 gas spot rates.png

Fuel oil is a little different from natural gas in that the daily spot price matters less than the price you paid the day you filled your tank. As a result, its possible to have a static strike price for switching from gas to oil. As an interuptible gas customer, its possible that the utility will make the decision for you on certain tight days, but there will be other days that present an economic arbitrage opportunity even if the utility does not have to activate curtailments. The table below shows fuel oil prices at common delivery points/terminals as reported by the Oil Price Information Service (OPIS) on 12/6/2013. 

Oil Price Table.png

Although No. 6 Fuel Oil is getting rarer and rarer these days, it will likely be economic to burn many days this winter. The same will be true of No. 4 fuel oil. No. 2 fuel oil is pretty expensive and we've made some estimates to convert the quoted wholesale prices into retail prices in $/MMBTU. As a result, the actual delivered price to your tank will vary based on your fuel oil vendor, delivery size, and your specific location. Despite the price of No. 2, we estimate that there will be a few days this winter where natural gas spot prices in New England will exceed $30/MMBTU. If your natural gas supplier cashes you out daily (Sprague, Hess, Global, and Shell offer this), then you can cash in on your flexibility by reselling your Daily Contract Quantity (DCQ) at the prevailing spot price if you have a fixed price DCQ or just avoid high prices if you are on an index. You'll also do your gas supplier a huge favor as your dual fuel capabilities represent a physical hedge in their portfolio. In order for this to work, you'll need to ensure that you have frequent communications with your natural gas supplier as they would need to provide you with price data.

If you have dual fuel capabilities and need to review your utility's interuptible program or determine a strategy, call us. We've worked with dual fuel customers throughout the U.S.

Dual Fuel Capabilities - More Valuable Than You Thought

Hi all,

Until natural gas prices started to collapse in late 2008, it was common for large facilities to optimize between fuel oil and natural gas based on the price of each fuel. Since Nov. 2008,  burning natural gas has been a no-brainer and any dual fuel activity has been centered around utility interruptible programs, not economic optimization. The natural gas prices experienced in the Northeast over the last ten weeks makes me think that many end users exposed to spot natural gas rates may want to revisit their dual fuel strategies. 

The delivered costs of No. 2 and No. 6 fuel oil vary based on customer location and purchase quantities, but generally speaking the current delivered price in the Northeast for Nos. 2 and 6 fuel oil are $24/MMBTU and $16/MMBTU, respectively. For the last several years, natural gas prices have almost invariably been below the price of fuel oil, but as the graphic below demonstrates, there have been several days this winter when burning oil instead of natural gas would have been economic for anyone exposed to spot gas rates.

Picture1.png

Although every facility will have different opportunity costs and operational constraints around their ability to switch fuels, lets walk through the economics for a hypothetical oversimplified customer. Lets presume that we have a facility that burns 500 MMBTU/day and purchases natural gas with an energy supplier. Lets presume that the gas supply contract is based on a gas daily spot price plus a fixed $/MMBTU fee and that this customer can switch fuels instantaneously with no opportunity costs. If this customer is located in the New York City area and buys natural gas based on the Transco Zone 6 NY price benchmark, they could have saved either $22,000 or $42,000 by burning Nos. 2 or 6 fuel oil, respectively on days when the Transco Zone 6 NY index exceeded the price of fuel oil. If this customer is located in New England and buys natural gas based on the Algonquin City Gates price benchmark, then they could have saved either $24,500 or $75,000 by burning Nos. 2 or 6 fuel oil, respectively on days when the Algonquin City Gates Index exceeded the price of fuel oil. I've found that the more sophisticated natural gas suppliers (e.g., Hess, Sprague) are good at helping customers execute a dual fuel strategy, but if this winter is a harbinger of things to come in the physical gas market, I'd dust off your dual fuel policies and procedures.