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Uprates eyed after NYC summer strip capacity price clears above expectations

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Uprates eyed after NYC summer strip capacity price clears above expectations

Coming in above most analyst expectations, the clearing price for New York City in the 2017 New York ISO installed capacity auction was up 72 cents on the year, "as it appears uprates were largely excluded from the auction," according to an April 5 research note from UBS Securities LLC equities analyst Julien Dumoulin-Smith.

Results posted April 4 showed the 2017 New York ISO installed capacity auction cleared at $11.71/kW-month in New York City, up from a 2016 auction price of $10.99/kW-month, its lowest point since 2009.

"The estimated capacity derived from the [NYC] clearing price reached 9.7 GW, or 150 MW, below our estimate. The question remains whether uprates will eventually participate this summer and the clearing price proves inflated. We expect future pressure to emerge and assume a $1/kW-month reduction into summer '18 as new uprates and the new exports from the Bayonne Energy Center (BEC) hit the market," Dumoulin-Smith wrote.

The 512-MW Bayonne Energy Center is located in Hudson County, N.J., and is owned by Macquarie Infrastructure Co., a unit of Macquarie Group Ltd.

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In New York, the summer strip auction, or summer capability period auction, is held at least 30 days prior to the capability period, which runs from May through October for the summer capability period and from November through April for the winter capability period.

"We emphasize the surprisingly high NYC clearing price is a positive for [NRG Energy Inc.] as it is the most exposed to this zone among the [independent power producers] (659 MW) as well as meaningfully higher [Lower Hudson Valley] prices [year over year], offset by its exposure in upstate NY with the bulk of its capacity (these are among its most profitable units across the portfolio). By contrast, we see the low results in the RoS as adding to the pressure on [Dynegy Inc.], although we know the nominal EBITDA impact is likely limited," Dumoulin-Smith added.

The latest installed capacity auction also saw a price of $10.50/kW-month for the Lower Hudson Valley's G-J locality, up from $8.25/kW-month in 2016, and $3.00/kW-month for the Rest-of-State, or RoS, region, down from $3.62/kW-month in 2016.

According to the Dumoulin-Smith, a more bearish demand curve exerted pressure on clearing prices in the RoS region.

Following the issuance of revised parameters at the end of March for the summer strip 2017 auction, Dumoulin-Smith projected prices of about $9.94/kW-month for New York City and $3.05/kW-month for the RoS region, citing weak demand forecasts, as well as uprates and new capacity additions, as catalysts for prices to likely move lower across the board.

"Results overall were mixed and were not necessarily the uniformly negative print we had initially expected as a new, more bearish demand curve was put into effect alongside weak demand forecasts. We wouldn't doubt more pressure in coming years, but emphasize the actions of Roseton in the [Lower Hudson Valley] region remains the principal offsetting factor to eventual pressure from two new merchant [combined-cycle gas turbines] under construction," the UBS note said.

Energy Trading Innovations LLC owns the 1,214-MW Roseton plant in Orange County, N.Y.

For more detailed capacity market data, visit our Capacity Market Pages.