New England Decisions Could Help or Hurt Renewables as ISO-NE, NEPOOL Face-Off at FERC

 

The New England grid operator is continuing efforts to bring more resources onto its system while also ensuring energy security across the grid, including sufficient fuel for fossil fuel generators, even during extreme weather events.

A trio of recent decisions is moving that process along, but just how they will impact electricity supply remains unclear and the net impact — for now — maybe be neutral, say regional energy experts.

In one decision, the Federal Energy Regulatory Commission on Dec. 2 directed ISO New England to eliminate a rule that has allowed new resources participating in the region’s capacity auctions to lock in prices for a period of seven years. The tool has been used in the past to secure financing for gas projects, but some clean energy advocates say the decision could make it more difficult to develop storage projects by cutting off that same pathway.

In a second decision, the NEPOOL Participants Committee voted to replace the ISO’s new default floor prices for resources bidding into the capacity market. Those alternate prices will now go before FERC, along with the ISO’s own proposed prices, for federal regulators to choose which will be utilized. Allowing these resources — particularly offshore wind and solar — to bid in at lower prices could help more green resources to clear the market, according to RENEW Northeast.

The floor price rule is in place, said ISO officials, to keep new resources from suppressing capacity market prices and forcing older generation out of the market, something the New England Power Generators Association (NEPGA) says could be a threat to some power plants.

And finally, FERC has closed its investigation into the region’s fuel security issues — leaving the grid operator uncertain about the next steps.

In 2018 FERC ordered the ISO to come up with a market-based solution for fuel and energy security, addressing the need for fossil fuel generators to secure supplies in case of extreme cold temperatures. The ISO submitted a proposal in April of this year, but FERC rejected it in October citing concerns over cost and effectiveness.

FERC has now closed that proceeding, leaving the situation unclear. The ISO is still evaluating the next steps, but with the closing of the docket, the grid operator is no longer required to bring a solution before the commission.

The debate over default floor prices

The default floor price for bids into the New England capacity market is technically called an “offer review trigger price,” (ORTP) and while it is resource agnostic, clean energy advocates say it is vital for consumers who want more renewables.

Any new resource that wants to participate in the ISO’s capacity market is given an ORTP based on that technology. That means resources cannot bid below those prices without approval from the grid operator’s independent market monitor after explaining how they are able to make the lower bid.

The rule is designed to keep new resources from bidding low to artificially suppress prices and knock out existing resources. Each technology has its own default price.

Renewable advocates say the prices are inaccurate and too high, as they do not account for cost reductions in recent years and some revenue streams.

“The costs of these technologies has come down a huge amount,” said Francis Pullaro, executive director of RENEW Northeast. He said the ISO’s floor prices are based on outdated data, but also said that “it’s been very challenging” to get the ISO to be more forthcoming with details about their cost estimates.

Pullaro also said that the ISO’s analysis has been ignoring investment tax credits for some projects, as the credits are phased out, even as some developers have been able to utilize provisions in tax law to access them. “They are completely ignoring that revenue,” said Pullaro. “It’s a significant revenue stream.”

Both the ISO’s proposal and NEPOOL’s proposed default floor prices will now head to FERC in what is known as a “jump ball” scenario. Previously, NEPOOL ran the region’s power system but when the ISO was established, the two created a process where in the event of a disagreement over market policies both entities can send proposals to FERC for a decision to be reviewed on equal footing.

The ISO proposal will be filed jointly with the NEPOOL proposals, before the end of the year, according to Pullaro.

“The ISO proposal will continue shutting out new renewable and storage resources from full participation in the capacity market,” Pullaro said. “This exclusion hurts both renewable generators and ratepayers. It keeps prices artificially high for consumers while perpetuating financial advantages to conventional generators.”

NEPGA President Dan Dolan says NEPOOL’s proposed floor prices “would effectively eliminate” the use of the minimum offer price rule (MOPR) in New England.

“I get that this is a controversial item, particularly among the renewables developers,” Dolan said. “But this is not the way to have a fundamental conversation about the long term future of the (MOPR) rule. … This is essentially a backdoor way into it, and we think is the wrong way to approach it.”

Elimination of price lock could remove project financing tool

Similar to the resource floor prices, FERC’s decision on the ISO’s 7-year price lock option in capacity markets is technology-neutral and experts said it could impact the ability of some projects to gain financing.

Looking back to the creation of the ISO’s capacity markets, in order to attract new capacity the grid operator enacted the price lock to allow new resources to lock in a clearing price for future years. The rule was meant to help projects attract financing and helped some gas plants get built.

According to the ISO, about 200 resources have utilized the price lock since the capacity market launched. Comparatively, about 1,300 resources in New England secured capacity obligations last year. But a comparison in the number of resources utilizing the lock is misleading, said Pullaro, adding that nearly 6 GW of resources have used the price lock including almost every large generator coming into the market in the last 14 capacity auctions.

Low capacity prices right now mean there is likely little benefit to the price lock rule, but Pullaro said that could change.

In February, the ISO said its 14th forward capacity market auction closed with a preliminary clearing price of $2 per kilowatt-month across New England, compared to $3.80/kW-month in the previous auction.

“It’s difficult to say whether a storage resource could finance based on that price lock, given recent historically low capacity prices. You may not want to lock in that low,” he said. “But the bottom line is, it’s a nice feature to finance projects, to have that price guarantee for seven years. And we’ve seen at least a few large natural gas plants being able to use that mechanism over the last few years.”

NEPGA argues that the rule was put in place to help develop a fledgling capacity market and is no longer needed.

When the capacity market was still relatively new, the price lock was effective, said Dolan. The rule provided more certainty, allowing for thousands of megawatts of new resources to come into the market.

“We’re now at a time when we are seeing stability in the capacity market, and it’s time to take the training wheels off,” said Dolan. When the New England capacity and energy markets are combined, any “sophisticated developer” can go out and get financing “for a project that makes sense,” he said.

With more than a dozen New England capacity auctions in the books, Dolan said there is now a longer tracker record “to be able to base a long-term financial commitment and come in and invest in the marketplace.”

The price lock rule was challenged by generators at FERC in 2014 and 2015 and then in the courts. The U.S. Court of Appeals for District of Columbia Circuit sent the decision back to FERC in 2018 and the commission this month determined it was no longer necessary. The commission directed the ISO to eliminate the price lock beginning with the region’s 2022 forward capacity auction.

FERC closes investigation into the region’s fuel security

Finally, there is FERC’s decision to close its investigation into New England’s energy security. The decision is largely procedural, confirming that the initial directive for the ISO to develop a plan no longer applies. The grid operator will now head back to the drawing board, but no longer has a deadline for a solution.

The grid operator asked FERC to clarify whether it is still required to come up with an energy security plan, but ISO officials say that with the closing of the docket, that request for clarification was made moot and at this point the grid operator does not have a compliance filing due to the commission. ISO officials say they are looking to engage with FERC staff to determine what regulators are looking for.

Whatever form the next plan takes, it will still need to go through the ISO’s stakeholder process and so there will be no more filings in the near term.

Officials say there is some uncertainty around this issue, as a FERC rejection would normally be accompanied by next step requirements. But in this case, the future is unclear.

According to Dolan, closing the docket means there is a chance for frank conversations between the industry and FERC about what a solution to fuel security should look like, including whether fuel security is still a “fundamental concern” and what are some of the mechanisms that need to be put in place.

Putting aside the larger issue of fuel security, said Dolan, the ISO’s proposal included a lot of “good basic market improvements.”

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