ISO-New England Presents Dual Function Capacity Auctions to Maintain Subsidized Generation

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The board of directors will seek out a proposal given by ISO-New England with intentions of standardizing the forward capacity market to maintain increased amounts of subsidized generation.  The plan also includes steps to conserve price signals for non-funded resources, as well as an official withdrawal display for soon to be retired power plants.

In terms of the proposal, retired plants and resources that qualify for capacity supply obligations (CSO) could relocate these obligations to updated, subsidized resources that do not currently have them.

In regards to the new resources, the price budget determined for these advancements would take place during an additional auction.  This is likely compared to the agreements between real time and day ahead energy manufacturers.

ISO New England plans to use its newest proposal to further the incorporation of subsidized generation resources into wholesale energy markets.

Across the globe, subsidized resources, such as renewable energy and nuclear power plants, have been lowering wholesale energy prices and diminishing revenue for generators.  These factors install fear for organized market models that things could potentially collapse.

The Federal Energy Regulatory Commission expressed its concerned and acquired a meeting to discuss technical issues.  ISO New England will continually encourage their proposal as a prototype for other grid operators.

Records of the current forward capacity auction indicated it would be divided into two parts, primary and substitution.

In the beginning phase, ISO New England would continue the FCA normally, utilizing the MOPR (minimum offer price rule) and using the capacity demand curve as it stands.  The retiring plants that bid below clearance pricing will obtain a CSO and establish capacity value while defining all resources’ original capacity rewards.

However, ISO New England does consider the fact that subsidized resources are questionable in meeting the primary FCA standards, partially because of the MOPR.  The MOPR limits resources that fall under a specific price from being approved for CSOs.  These factors are the reason the substitution auction needs to take place.

During the substitution auction, retired plants that have engaged CSOs are eligible to handover responsibilities to their updated, subsidized resources that were not previously approved.  This auction would occur without the MOPR or the demand curves and the newly determined price would now stand as the auctions approval price.

All final decisions would be the result of both auctions combined, like the agreement process for day-ahead and real-time electricity wholesales.

The resources that are primarily approved are attributed to the original FCA clearing price value and the resources that are faced with additional obligations, look to the substitution auction for supplementary charges and variations in the clearing price value.

This proposal provides opportunities for current resources that acquire CSOs in the primary auction to rid obligations for a reduced value than if they choose to engage in them.

The dual function auction can create several beneficial assets, including conserving the ambitious capacity prices for current resources and steps to successful retirement for diminishing resources that are looked to be replaced with newer and more efficient generation.

The proposal does not stand as a ‘cure-all’ solution to market energy problems however, it does provide open doors for wholesale electricity pricing and smart retirements for depleting plants.

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