ISO-NE proposal would drive state-sponsored renewables into wholesale markets

Dive Brief:

ISO New England has proposed tariff changes aimed accommodating state-sponsored renewable resources in the region's Forward Capacity Market (FCM), while still finding a way to guard its competitive pricing mechanisms.
The grid operator's proposed solution calls for a two-stage Forward Capacity Auction (FCA). The first auction would function largely is it does today, but a second stage would include a voluntary substitution auction. Existing resources that just retained supply obligations in the primary capacity auction and "are willing to permanently exit the market" can transfer their supply obligations to the sponsored resources in exchange for split revenues.
ISO New England requested the new Competitive Auctions with Sponsored Policy Resources (CASPR) rules become effective March 9 to align with the year-long auction-administration cycle.

Dive Insight:

ISO New England has asked FERC to approve an innovative new auction mechanism it hopes will allow renewable resources sponsored by state policies to participate in wholesale capacity markets without sending the bids all out of whack.

As the grid operator explained in its application to FERC, "out-of-market actions could have adverse consequences for FCM. Specifically, resources that reflect their out-of-market contract revenue in their FCM offers and clear in the market can depress market prices for many years."

Price suppression means the market doesn't retain and justly compensate the resources it needs and doesn't attract new competitively-compensated resources.

"Moreover, if competitive new entry does occur, its cost can be substantially increased," the ISO said.

The proposed CASPR rules' substitute auction would allow sponsored resources to participate without minimum offer price rules, and those sponsored resources that win contract obligations in a secondary auction would be considered existing resources in future years.

Through the substitution auction, the ISO explained that the retiring resource and the new resource would agree to split the FCM revenues, "resulting in a severance payment to the retiring resource and compensation to the sponsored resource (albeit at a lower level than if it cleared through the primary auction)."

Having the new rules approved by March 9 would allow the proposal to align with the ISO's 13th FCA, which will be administered in February 2019 for the 2022-2023 Capacity Commitment Period.

The ISO noted that the auction also coincides with the potential introduction into the markets of up to 1,200 MW of clean resources procured by Massachusetts under its 2016 Energy Diversity Act.