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Will 2/4/2019 define the future of Wholesale Capacity Markets in North America?

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On February 4th ISO New England will run, for the first time, an auction that aims to accommodate state goals for renewable energy targets. These enhancements by ISO New England are a direct response to the challenges identified by FERC in Docket AD17-11-000 which sought to resolve tensions between wholesale markets and State energy goals, which resulted in the acquisition of capacity outside of the ISO’s market mechanism.

ISO New England refers to these auction enhancements as Competitive Auctions with Subsidized Policy Resources (CASPR). The notion is to allow State subsidized capacity, obtained outside of the wholesale market, to participate in the market by acquiring the capacity supply obligations of retiring units, AFTER an initial price setting round, which determines the FCM clearing price (payments to generators), exclusive of these State resources, in order prevent them from causing price distortions in the market.

I see two issues that may be problematic to this approach.

  1. Insufficient capacity supply MW’s from retiring units to accommodate the amount of State sponsored capacity that is available. According to data from ISO New England as of 8/17/2018 there is only 581.663 MW of retiring capacity MW’s available for CASPR. NOTE: This assumes that the 575 MW’s of capacity for Mystic 7 unit, does indeed retire. It’s unclear if Mystic 7 is included in the cost of recovery that was approved by FERC to be retained for reliability purposes at a substantial cost to electricity customers in New England. If the Mystic 7 MW’s are not retired, there will only be ~7 MW of capacity available to be acquired by State sponsored resources.
  2. ISO-NE frequently acquires more capacity MW than it needs, as expressed in the Installed Capacity Requirement (ICR) that determines how much capacity the ISO aims to acquire in an auction. This occurs because of the way in which the auction clearing rules have been defined. For example, in FCA 12 (in 2018) the ICR was 34,683 and the ISO acquired 34,828 in capacity supply obligations, 145 MW in excess capacity. In past years, when floor prices are reached, it can result in significant over buying of capacity MW, as seen in the FCA_2013_2014 auction when the ICR was 33,043 by the ISO awarded 37,501 in capacity supply obligations resulting in an excess of 4,458 MW. It’s interesting to note that peak demand in 2013-14 was only 27,379 MW, resulting in over 10,000 MW of excess capacity above peak demand.

My questions are:

  • Will ISONE run a CASPR stage of the auction even if they acquire excess capacity in the first stage of the auction to satisfy ICR and the retiring unit’s MW’s (like in 2013-14 when excess capacity was 4,458 MW)?
  • If they do run a CASPR stage, while already holding excess capacity MW, will they acquire more excess capacity in order to accommodate State energy goals?
Richard Brooks's picture

Thank Richard for the Post!

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Bob Meinetz's picture
Bob Meinetz on February 3, 2019

 

It’s interesting to note that peak demand in 2013-14 was only 27,379 MW, resulting in over 10,000 MW of excess capacity above peak demand.

Richard, this appears to be compelling evidence "capacity" payments bear no relationship to what the resources receiving them can actually deliver.

When capacity is purchased from a dispatchable source (coal/gas/nuclear), there is a high probability ratepayers will get their money's worth - that generator will be online and generating electricity.

With renewables, especially solar in New England (capacity factor ~13%), ratepayers can expect to get one-eighth the value for their money - it's anyone's guess whether solar generation will be available when it's needed.

Which would also explain why ISO-NE bought 27% more capacity than even the maximum load it might be expected to meet: system operators had to buy fossil fuel backup in case renewables weren't available.

Richard Brooks's picture
Richard Brooks on February 3, 2019

Good point, Bob. To be fair though, one of the big problems with the FCM is the 3 year time horizon for capacity purchases. There's simply no way an ISO can accurately forecast energy needs 3 years in advance with self-suupply coming onto the system via rooftop solar at an alarming rate. That's why an Always On Capacity Eexchange approach is more appropriate. This allows an ISO to secure it's reliability needs much closer to when it's needed, more like 3 months in advance, not 3 years. And it's a market based approach, anyone can acquire capacity in AOCE - Facebook can secure it's green power in AOCE and ISO New England can secure what's needed for reliability.

Bob Meinetz's picture
Bob Meinetz on February 3, 2019

Agree, Richard - an excellent suggestion. Of course, Facebook wouldn't be able to secure just any green power - intermittent sources like solar and wind wouldn't qualify as "always on". So you could expect howls of protest from industry groups SEIA and AWEA, members of which have become quite comfortable with receiving undue credit.

Replacing "renewable portfolio standards" with "green portfolio standards", entitling large hydro and nuclear to the same credits and subsidies as other zero-emission resources, is another policy correction long overdue.

Richard Brooks's picture
Richard Brooks on February 7, 2019

Yep, we're totally on the same page with expanding "clean" resources to include hydro and nuclear! Thanks for your insights, Bob

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