New England Public Policy Center Working Paper No. 05-2
by Carrie Conaway

New England needs a reliable supply of energy for its day-to-day functioning and its economic growth. The right mix of fuels and technologies must be in the right place at the right time, all the time. Because of the long lead times in building energy infrastructure, ensuring system reliability requires making decisions, investments, and policy today that will allow the region to meet expected demand many years from now, while at the same time buffering the region from the impact of unexpected short-term changes in energy markets. And this, in turn, requires both well-functioning markets and carefully crafted public policies.

Reliability is of particular concern to New England, for several reasons. First, the region lacks indigenous sources of energy. This means the region's energy comes at higher cost because it must be transported farther to get here, and it can also leave the region vulnerable to interruptions in supply and price spikes in world markets. Second, some are concerned that the deregulated structure of the region's wholesale and retail electricity markets may not be providing the right incentives for firms to invest in new generation capacity, which could threaten system reliability. Third, most agree that even if the right incentives were in place, it would still be difficult to find communities willing to host this new infrastructure because of the region's fragmented local decision-making and increasing community concerns about the safety, security, and economic impacts of these facilities.

New England's state governments can and should take a more active role in ensuring system reliability. They can work to maintain the region's fuel diversity by responding to the region's dramatic growth in natural gas demand and by experimenting with incentives to promote renewable energy sources and new technologies. They can reduce demand through new energy pricing structures and energy efficiency programs. They can work with ISO New England and energy regulators to improve the incentives for investing in electrical generation. And they can smooth the process of siting new infrastructure so that community, regional, and national considerations are all given due weight.

New England's energy problems were not quickly created, and neither will they be quickly solved. But they cannot be ignored, for they are too important to the region's future. Without the assurance of an energy system that can meet immediate demands along with long-term growth, the region puts its economic prosperity at risk.

Keywords: energy policy, New England, fuel diversity, infrastructure investment, infrastructure siting
JEL Classifications: Q40, Q48, R10, R38, R53

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