New York — ISO New England and New England Power Pool stakeholders March 18 evaluated clean energy and carbon pricing frameworks as alternative market designs to advance the region's clean energy transition, with specific consideration given to a forward clean energy market and a net carbon price.
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The ISO is working with stakeholders and consulting firm Analysis Group to evaluate two market frameworks that have been discussed as potential pathways to the future grid, according to a presentation given by ISO-NE staff during a NEPOOL Participants Committee working session that was posted to the grid operator's website.
ISO-NE plans to study both frameworks simultaneously and issue a final report in early 2022 that discusses the market impacts of both designs.
The grid operator proposed evaluating the effects of awarding clean energy certificates to resources that produce electricity without emitting carbon dioxide, which includes wind power, solar power, hydropower, and nuclear power.
The treatment of energy storage is still under discussion. Storage can contribute to clean energy production by charging during off‐peak hours, where the marginal resource may be clean, and discharging during on‐peak hours where the marginal resource is less likely to be clean, according to the presentation.
ISO-NE is assessing whether it is "sensible for such compensation to include clean energy certificates in addition to other wholesale market revenues," the presentation said.
Another consideration is whether clean energy certificates should be static or dynamic, with the current straw framework assuming static certificates.
Static certificates would not vary with the emissions intensity of the marginal resource. The static approach is simpler to model than a dynamic approach, which would apply weights based on the carbon intensity of the marginal resource when awarding clean energy certificates.
A dynamic approach could raise challenges for clean energy suppliers when offering into the FCEM and energy markets because if weights are not known when submitting FCEM and energy offers, participants would need to formulate offers based on expected weights, the presentation said.
Resources that sell clean energy in the FCEM would have two ways to meet the obligation associated with their position: produce clean energy during the delivery period and receive the corresponding clean energy certificates or buy clean energy certificates from other resources that are willing to sell the credits, when they may expect to produce more clean energy than they sold forward, according to the ISO.
Stakeholders also need to decide how the FCEM would interact with exiting state-level renewable energy credit programs. Three potential approaches have been identified: clean energy could be a new environmental attribute distinct from other attributes, clean energy certificates could include all environmental attributes or existing state programs could be discontinued with the introduction of the FCEM.
Stakeholders have shown interest in creating an Integrated Clean Capacity Market, or ICCM, that would jointly clear capacity and clean energy in a single auction.
"Conceptually, an ICCM would jointly procure both conventional capacity and clean energy on a forward basis to satisfy both sets of demand bids at least cost," according to an ISO-NE memo included with the meeting materials.
Under this approach, clean energy resources would be able to sell forward both capacity and clean energy, with the states submitting demand bids for clean energy, the memo said.
There would be two prices for the procured products -- one for capacity in $/MW and one for clean energy in $/MWh -- to account for the two distinct products procured.
Numerous outstanding questions and challenges remain, including that the ICCM would likely add significant complexity to the existing forward capacity market and would "require a number of substantial changes to the forward capacity market rules, schedule, and processes," according to the presentation.
Net carbon pricing
The product would be carbon dioxide emissions and resources would be charged a carbon price for each unit of carbon emitted to produce electricity, much like the way the Regional Greenhouse Gas Initiative is designed.
However, a net carbon price is likely to be "significantly higher" than that associated with RGGI, and thus would further drive the region's decarbonization, ISO-NE said.
ISO-NE has proposed that the net carbon price revenue collected from carbon emitting generators would be rebated to load. The per MWh rebate would be equal to the product of the applicable carbon price and the average carbon intensity of electricity production for the delivery period, according to the presentation.
Discussions on these potential market designs will continue with stakeholders and a final report on modeled market outcomes will be shared in February 2022.