Capacity Costs Rising in Near Future

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Capacity Costs Rising in Near Future

New England’s wholesale electricity industry is amid transformation as the closure of non-gas power generators are challenging New England’s electricity resource adequacy. New investment in generation in New England has been outpaced by retirements, for reasons ranging from the less-than-stellar financial viability of nuclear generation, the transition away from “dirty” fuels, such as coal and oil, and the volatility of the financial markets. For that reason, as many as 4,200 MW of New England’s generation has recently retired or will retire over the next five years.

This retirement trend has already had an impact on the prices paid for capacity, in turn affecting the capacity element of electricity supply prices, which, on a per-unit basis will increase through 2019, before moderating somewhat in 2019-2020. To incentivize new generation entering the New England market, as well as to prevent existing generation resources from leaving the market, and owing to the slow pace of building new generation, capacity prices in New England are rising and will be more volatile for the next 2-3 years, beginning with the 2016- 2017 capacity year. This is being felt immediately in the Northeast Massachusetts/Boston (NEMA/Boston) capacity zone, where the prices paid (and corresponding costs to retail suppliers and utilities) are as much as 542% higher than the rest of New England.

In the auction for the 2018-19 capacity year, while NEMA/Boston prices moderate some, the Southeastern Mass./Rhode Island zone is the hardest hit, with capacity prices on average will nearly 50% higher than the rest of New England.

Past auctions have also determined that New England’s average capacity price is set to more than triple next year (June 1, 2017- May 31, 2018) and more than double for the subsequent year (June 1, 2017 – May 31, 2018.)

Managing Your Capacity Cost

The capacity cost has a significant impact on your electricity bill, so if your organization is located in New England, it is essential that you become knowledgeable on the subject.

Patriot Energy assists commercial energy users by offering several strategies you can use to limit exposure to high capacity costs. Some of these strategies include (but aren’t limited to) curtailing your electricity usage on days when demand is highest, taking measures to make your company more energy efficient, on-site generation, installing an interval meter, and utilizing price response programs.

These strategies require an understanding of how your organization consumes electricity, when your individual peaks occur, and how those peaks correspond with coincident peaks. We can help your business identify these areas, so you’re able to take the proactive steps. Talk to your energy consultant about what solution works best for your business.

 

Note: The information contained in this communication is provided as a courtesy for our client’s general informational purposes only, does not consider individual client circumstances, actual supplier contract or non-price terms, and/or client usage market or changes or anomalies, and is not indicative nor a guarantee of any future result or results. Before making decisions about retail power purchases, you should independently verify all facts important to your decision. The information provided is not a contract for natural gas supply nor should it be construed as an offer to sell or as a solicitation of an offer

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