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