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ISO-NE Capacity Prices Fall to Record Low

by Ed Burke, Dennis K. Burke Inc.

New England’s competitive wholesale electricity markets are producing record low prices. In February, the Independent System Operator of New England (ISO-NE) held its 14th annual power generation Forward Capacity Auction (FCA). Closing at $2.00 per kilowatt-month, it is the lowest clearing price in the auction’s history.

Back in 2015, the wholesale electricity price reached a peak of $17.73 per kilowatt-month. Since then, the price has steadily declined to $4.63 in 2018 and $3.80 last year. The $2.00 per kilowatt-month price represents a 47 percent decrease from last year’s price.

Designing and administering the region’s competitive wholesale electricity markets is one of three critical roles ISO-NE performs in the region (see below). The operator of the six-state power grid, ISO-NE views the lower price as a win for ratepayers.

Why are Prices so Low?

Back in November, ISO-NE filed its net Installed Capacity Requirement (ICR), a measure of the installed resources needed to meet reliability standards of New England’s forecasted load requirements. ISO-NE proposed reducing last year’s net ICR of 33,750 megawatts to a net ICR of 32,490 megawatts this year.

Electricity demand in the region has been holding fairly steady, largely credited to state energy-efficiency programs. New England has also added 493 megawatts of rooftop solar over the last year, which reduces the demand for utility-scale power.

The pricing also reflects the growing number of new renewable-energy projects feeding into the regional power grid. Of the 600 megawatts of new electricity approved in the auction, 317 were from wind, solar, and solar-paired batteries.

There were two more issues that pushed the auction price lower. In January, ISO-NE announced retaining Exelon’s Mystic-8 and Mystic-9 combined cycle gas turbines for fuel security purposes under a cost-of-service agreement through the 2023-2024 commitment period. ISO-NE also implemented its Inventoried Energy Program, which compensates generation resources that store fuel onsite during winter months. The program is intended as a stopgap measure applicable only to the 2023-2024 and 2024-2025 winters. Since both of these actions are intended to be temporary, the market could see an upward price trend when these programs expire.

To meet peak demand in 2023- 2024, the auction received commitments for 33,956 megawatts with 1,466 megawatts of surplus supply.

In all, a total of 42,219 megawatts qualified to participate in the auction, including 516 new resources totaling 7,314 megawatts.

Jurisdiction Matters

More than a dozen solar and energy storage projects could have been available to participate in the auction, but confusion over federal and state interconnection procedures caused those projects to miss key qualification deadlines.

At issue is the process to determine whether the projects’ interconnection points fall under the jurisdiction of the Federal Energy Regulatory Commission (FERC).

Genbright, an asset management company had planned to bid 18 projects into the auction, but Massachusetts utility Eversource determined the developers had used the state interconnection process, when in fact FERC had jurisdiction. That determination resulted in those projects missing a Show of Interest deadline in April 2019.

Under the circumstances, Genbright asked FERC for waivers to bypass the qualification process and allow them to participate in the auction. The first waiver request focused on projects that Genbright said had been erroneously classified as FERC-jurisdictional. The second waiver request claimed that Eversource should have made the determination sooner than it did and that the utility informed the ISO only days before the FCA qualification process ended.

In December, Genbright received a waiver for four of the projects to participate in the auction, when FERC found Eversource’s determination for those was in error.

Just before the auction, Genbright’s other 14 projects (seven solar and seven associated energy storage projects) were denied a waiver for missing the key qualification deadline. FERC said the requested waiver would allow the projects to avoid the interconnection study process and the system impact study, which are ISO-NE’s comprehensive reliability evaluation.

Genbright said capacity for all 18 projects was about 65 megawatts. The first waiver covered about 15 megawatts, and the rejected second waiver covered about 50 megawatts.

Although Genbright’s waiver request is a first for the auction, other resources were denied qualification in last year’s auction for failing to establish the appropriate interconnection request with
the ISO.

Genbright said that without access to market revenues from the 2023-2024 period, the status of the solar and storage resource projects is left in question. Investors will now need to make a decision as to whether to delay projects.

The interconnection process is complicated, especially as more distributed energy resources would like to interconnect to the system for retail purposes. ISO-NE says it will take steps to clarify the qualification process in the future.

ISO-NE’s 3 Critical Roles

The region’s competitive markets work together to ensure the constant availability of competitively priced electricity for the region’s 14.8 million residents.

In New England, wholesale electricity is bought and sold in one of two ways: either through contracts between individual buyers and sellers (called bilateral trading), or in markets managed by ISO that establish prices for wholesale electricity products and services through competitive bids.

The products traded in New England’s wholesale electricity markets comprise three major categories – the energy market, a capacity market and ancillary services.

Energy Markets for Buying and Selling Day-to-Day Wholesale Electric Power
New England has two electric energy markets for buying and selling day-to-day wholesale electric power. The Day-Ahead Energy Market allows market participants to secure prices for electric energy the day before delivery and to hedge against price fluctuations that occur in real time. The Real-Time Energy Market balances the dispatch of generation and demand resources to meet the instantaneous demand for electricity throughout New England.

A Capacity Market for Ensuring Long-Term System Reliability
The Forward Capacity Market (FCM), the region’s long-term power generation capacity market, ensures the system has sufficient resources to meet future demands by paying resources to be available to meet the projected demand for electricity three years out, and operate when needed once the capacity commitment period begins.

Forward Capacity Auctions (FCAs) are held annually, three years in advance of the operating period. Resources compete in the auctions to obtain a commitment to supply capacity in exchange for a market-priced capacity payment. These payments help support the development of new resources and help retain existing resources. For example, they incentivize investment in technology or practices that help ensure strong performance. They also serve as a stable revenue stream for resources, like fuel oil generators, that help meet peak demand but don’t run often for the rest of the year.

Ancillary Services for Ensuring Short-Term System Reliability
These are services provided to the power system that are necessary for ensuring reliability in the short-term.

The Regulation Market compensates resources that the ISO instructs to increase or decrease output moment-by-moment to balance the system frequency. The grid’s frequency must be kept very close to 60 hertz.

The Forward Reserve Market (FRM) compensates resources for keeping capacity in reserve and available to provide electric energy within 10 or 30 minutes, which ensures the New England system is able to withstand adverse events such as unexpected outages.

Real-Time Reserve Pricing compensates resources for operating in a ready-to-respond state to supply electric energy or reduce demand in real time if needed to preserve system reliability.

Voltage Support compensates resources for maintaining voltage-control capability, which allows system operators to maintain transmission voltages within an acceptable range –
a requirement for electricity to flow continuously and reliably.

Blackstart Capability compensates specific power plants at key locations for their capability to restart the transmission system following a blackout.

Beyond administering New England’s wholesale electric markets, the ISO has other related responsibilities. ISO processes vast amounts of data for hundreds of locations across the grid, every five minutes and hourly. They deal with countless contracts and provide billing services to the buyers and sellers. They also ensure participants’ compliance with the market rules, and that the markets are being operated fairly and competitively.