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SHOCK: Capacity Market Facing 1,000 MW Deficit of Existing Resources
Despite a capacity market and mandated reserve margin, ISO New England told FERC that it is facing a shortage of existing resources to meet its Installed Capacity Requirement (ICR).
"Well after the deadlines for qualifying new resources to participate in FCA 8 [forward capacity auction], however, the New England capacity supply situation changed dramatically," FERC said.
"In August, after prevailing in its litigation with the State of Vermont, Entergy announced the retirement of the 604 MW Vermont Yankee nuclear plant and submitted a non-price retirement request ('NPRR'). In October, an additional 2,500 MWs left the FCM by submitting NPRRs," the ISO said.
Note that these are "non-price" retirements, and are not being driven by "efficient" pricing in the capacity market (meaning new resources are not bumping older, more costlier plants out of the market). Rather, the capacity owners are pulling the generation from the auction before the auction is even held.
"These events changed the supply-demand balance from a surplus of existing resources of over 2,000 MWs to a deficiency of existing resources of over 1,000 MWs, compared with the ICR. The abrupt change in the supply-demand balance, coupled with the general decline in the amount of new resources seeking to participate in the auction (likely because of low prices set by the current vertical demand curve structure, which signaled that new resources were not needed), means that it is possible that the IC Rule will be invoked in FCA 8," ISO New England said.
This prompted ISO NE to seek certain administrative pricing relief from FERC. In short, the ISO is proposing a rate of $7.025/kW-month to be applied in FCA 8.
However, the ISO also said that it would seek to implement a downward sloping demand curve, which generally acts to raise the capacity clearing price by over-procuring capacity.
"The ISO, beginning in the New England Power Pool ('NEPOOL') stakeholder process in January, will propose a downward sloping demand curve that will solve significant flaws in the FCM and should alleviate the need for these administrative pricing rules; the ISO plans to file a demand curve with the Commission in the summer of 2014," the ISO said.
As more fully noted in our related story today (click here), this market design change is another illustration that fantasies of a "Texas-style" capacity market are fiction, and that even when innovative designs are adopted, capacity owners are successfully getting designs changed to their desired design (downward sloping demand curve, strict offer floors, etc.).
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November 25, 2013
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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