Dive Brief:
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The Midcontinent ISO has chosen a forward capacity auction design recommended by The Brattle Group over a hybrid capacity auction model backed by the ISO’s Independent Market Monitor (IMM), RTO Insider reports.
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Brattle’s analysis says a forward model would reduce price volatility by 35% to 37% compared to MISO’s existing capacity market and would attract some 1,800 MW of merchant generation.
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MISO is expected to file a draft tariff later this month and hold stakeholder discussions in early August before presenting the tariff to the markets committee of the board of directors on Aug. 8.
Dive Insight:
MISO has been working on a redesign of its capacity market to better reflect the value of new capacity and to attract investment in new generation. The ISO’s IMM last month warned that without changes the current market would provide only a balancing function and would not encourage investments.
By embracing Brattle’s capacity auction design MISO is going against the recommendations of its IMM.
“This is the best chance of seeing real improvement,” Jeff Bladen, executive director of MISO market services, said, according to RTO Insider. He called Brattle’s proposal the “best fit” to address price formation and to encourage the new entry by generation resources.
IMM David Patton, meanwhile, remained critical of the forward proposal. He said it measures volatility and reliability but ignores the efficient pricing that would allow generators to recover costs.
“Volatility is a secondary metric at best,” he said.
Capacity market reform has been a trend in the four organized energy markets that feature them — PJM, ISO-New England, the New York ISO and MISO.
Faced with historically low prices in real-time energy markets, policymakers have sought to raise payments in capacity markets to keep large plants economic and preserve reliability. PJM's latest capacity auction, however, delivered unexpectedly low prices, an indication that low-cost natural gas plants may be pushing down prices there as well.
