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It’s time to give Traders, Energy Suppliers and Green Buyers, like Google and Budweiser, free access to Capacity Markets Nationwide

Photo by John Salvino on Unsplash

Capacity Markets operated by ISO New England (ISONE), PJM and the New York ISO (NYISO) are very tightly controlled. In the case of ISONE, which I’m most familiar with, auctions are held 3 years in advance of when the capacity is needed (called the capacity commitment period, “CCP”), with annual “reconfiguration auctions” to allow buying/selling of Capacity Supply Obligations (CSO) for the CCP. Monthly auctions also occur during the CCP. For example, ISONE is holding an Auction, FCA #13, on 2/4/2019 to secure capacity for 2022-2023. Participation in an FCM auction is limited to Market Participants that register with each ISO and the process is different, across ISO’s. Recent reverberations within PJM are also a good indicator that a new solution is needed. Both FERC and State initiatives have tried in the past to address tensions in Capacity Markets arising from out of market capacity purchases, without success.

This rigid design with its highly inaccurate 3-year forecasts and limited, annual trading window is far too stiff for today’s dynamic energy marketplace. It’s time to unleash the Capacity Markets and “set loose” the capacity sellers and buyers to buy and sell when they want, for the type of capacity they desire, i.e. Green Power, for “commitment periods” they agree to, not a static one year or one month, at prices they agree to, in a 24x7 marketplace.

The Always on Capacity Exchange (AOCE pronounced ACE) proposal is one such mechanism that would enable greater participation by all interested buyers to secure future Capacity and Energy at terms which are agreeable to the transacting parties. Trading is open 24x7 in AOCE, not once per year, making it a much more dynamic solution.

The ISO will continue to serve in its role as a capacity buyer for reliability purposes, but it does so by first honoring the capacity commitments that already exist in the AOCE. This enables the ISO to acquire only the amount of capacity that’s needed for reliability. For example, suppose a State program secures 1000 MW of Green Capacity in AOCE and a “Green Buyer”, like Google acquires 1000 MW and ISO determines they need 3000 MW to meet reliability requirements. The ISO would first acquire the 2000 of MW’s already committed in AOCE and place a bid for the delta, 1000 MW for the region. This would enable parties to place locational bids for green power to satisfy State energy targets and the beneficiaries in those locations would be charged for that capacity, not the entire region. AOCE also permits “Green Buyers” to establish complete Power Purchase Agreements, defined within the terms of the offer/bid and binding transaction.

A nation-wide standard definition of AOCE, defined by a consensus of stakeholders (Generators and Energy Suppliers), regulators, energy buyers (i.e. Google and Budweiser), traders and consumer advocates, in a NAESB process would ensure that each Capacity Market would operate consistently across the country. ISO’s would operate the AOCE nodes within their individual control areas, however bids/offers would be shared across ISO’s in order to permit capacity transactions across a grid, i.e. the Eastern Interconnect.

Richard Brooks's picture

Thank Richard for the Post!

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Discussions

Matt Chester's picture
Matt Chester on Feb 4, 2019 9:24 pm GMT

Three year forecasts make it so hard for outfits that aren't as massive as Google or Bud to make these moves-- would it be true that AOCE would help with this as well?

Richard Brooks's picture
Richard Brooks on Feb 4, 2019 9:39 pm GMT

Thanks, Matt. AOCE would certainly allow parties to purchase the exact amount of capacity and power they want for the timeframe they define. Any party can place a bid to buy future capacity and energy in AOCE, it's up to suppliers to respond to these bids and reach an agreemment with buyers on price, location and other characteristics, to establish a capacity commitment in AOCE. ISO's acquire capacity commitments (CC) in AOCE in order to satify their reliability needs, resulting in a Capacity Supply Obligation (CSO) on the supplier of a capacity commitment.

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