Public Power Study: Forward Capacity Market Not Needed in New York for Resource Adequacy

A study by Christensen Associates Energy Consulting prepared for several public power organizations concludes that New York's current approach to resource adequacy, including a spot capacity auction with no multi-year forward obligation, "does not require replacement by a mandatory forward centralized capacity market."

The study, available here, was prepared for the American Public Power Association (APPA), National Rural Electric Cooperative Association (NRECA) and the New York Association of Public Power (NYAPP).

The public power organizations said that the study, "found that there are numerous drivers of the construction of new generation other than the NY ISO capacity market, including utility obligations to serve, reliability standards, renewable portfolio requirements and environmental regulations."

"Moreover, a significant portion of the new generation has been financed not by volatile market revenues, but by bilateral contracts, utility ownership, or New York State Energy Research and Development Authority (NYSERDA) renewable energy programs," the groups said.

"For example, 77 percent of the new generation planned through 2016 is being constructed under long-term bilateral contracts or utility ownership," the groups said.

Looking at generation placed in service from 2006 through 2012, about 44% of the capacity placed in service was supported by a long-term PPA between a utility (i.e., an LSE) and a merchant plant developer. Another 25% of capacity was renewable capacity supported by long-term contracts from NYSERDA or similar public policy. Some 31% of capacity additions during this period were placed in service by independent power producers that depended entirely on the NYISO's centrally administered markets for revenues

The study concludes that New York has succeeded in, "providing generation capacity where it is most highly valued, using diverse fuels and meeting a variety of renewable resources and environmental policy goals."

"This success has been achieved without resorting to a mandatory forward market such as those used by PJM and ISO New England," the study says,

"The current design does not require replacement by a mandatory forward centralized capacity market," the study says.

"This study demonstrates that the optimal means to obtaining new cleaner generation supply is through long-term contracts or utility ownership. Unfortunately, incumbent merchant generators have sought and obtained rule changes in the other capacity markets that greatly restrict such non-market avenues," said Mark Crisson, APPA President and CEO.

Link to Study