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New England forward capacity auction price expected to decline on year

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New England forward capacity auction price expected to decline on year

The clearing price in the upcoming 12th annual ISO New England forward capacity auction could come in lower than the prior year's $5.30/kW-month due to a number of new market developments.

The ISO New England's 12th forward capacity auction, or FCA 12, which covers the delivery year 2021/2022, will begin Feb. 5, with results to be issued in the ensuing days.

Senior research analysts from S&P Global Market Intelligence are calling for an auction clearing price of $5.26/kW-month.

Pointing to overall uncertainty regarding the participation and bidding behavior of the 6 GW of oil/gas and coal capacity in the system, analysts from ICF International are looking for an even weaker capacity price in the New England auction that could range anywhere between $4.30/kW-month and $5.30/kW-month.

Analysts agree that zonal price separation is not likely to occur in FCA 12.

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"There are several developments that point to lower capacity prices for the upcoming forward capacity market (FCM) auction. These developments include the implementation of lower Net Cost of New Entry (CONE), further transition to convex-shaped demand curves, and lower Net Installed Capacity Requirements (ICR). The downward impact of these developments will be partially offset by higher penalty rates and the retirement of Bridgeport Harbor 3," according to an ICF report dated Jan. 12.

Senior director for Americas power analytics at S&P Global Platts, Manan Ahuja, said his group's estimate is leaning toward the lower end, if not below, most of its peer's projections in light of the fact that ISO-NE has decreased its net ICR for the FCA 12 to 33,725 MW, from 34,075 MW in FCA 11.

"The biggest contributors to the drop are the decrease in the projected peak demand, and the marginal increase in tie-in-benefits, which result in a decrease of approximately 395 MW and 69 MW in the net ICR, respectively. The largest offset is provided by the expected increase in the forced outage rate of generators that increases the net ICR by approximately 106 MW. The overall decrease in net ICR will shift the demand curves to the left and is expected to decrease the capacity prices in the range of -$0.6/kW-mo. to -$0.75/kW-mo," ICF wrote.

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Ahuja concurred that the decline in the ICR and the lower CONE, which has dropped from $11.64/kW-month in FCA 11 to $8.04/kW-month in FC12, both shift the demand curve to the left.

Additionally, Ahuja pointed to bearish changes on the supply side. Pegged at about 3.2 GW for FCA 12, demand response has been increasing in the last few auctions and moves the supply curve to the right, Ahuja noted.

In February 2017, FCA 11, which covered the capacity commitment period June 1, 2020, through May 31, 2021, cleared after five rounds at a price of $5.30/kW-month, down $1.73-kW/month, or 24.6%, on the year. A total of 35,835 MW of capacity cleared in FCA 11.

In early January, ISO-NE proposed creating a two-part power market capacity auction aimed at accommodating states' energy policies by allowing newer generation to replace aging assets that are willing to retire for something similar to a severance payment.

In a Jan. 8 filing, ISO-NE proposed to hold a forward capacity auction as it has in the past but immediately follow it with a so-called "substitution" auction in which existing resources that cleared the primary auction but are willing to permanently retire can offer to transfer over those capacity supply obligations to a new resource through a sealed-bid auction at the lowest price at which the plant is willing to leave the market.

ISO-NE said it hopes to propose mitigation measures in time for FCA 13 in February 2019.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.