trending Market Intelligence /marketintelligence/en/news-insights/trending/NoE1ObvmtiA7GoOl8TWPJA2 content esgSubNav
In This List

States, generators urge ISO-NE to rethink market design amid push for renewables

Blog

Corporate Credit Risk Trends in Developing Markets: An Expected Credit Loss (ECL) Perspective

Blog

Highlighting the Top Regional Aftermarket Research Brokers by Sector Coverage

Blog

Essential Energy Insights, May 2021

Video

COVID-19 Impact & Recovery: Energy Outlook for H2 2021


States, generators urge ISO-NE to rethink market design amid push for renewables

SNL Image

The ISO New England is facing calls to retool its competitive wholesale power market design to better accommodate state-supported resources such as the 30-MW Block Island Offshore Wind project, which came online in 2016.
Source: Associated Press

Concerned about the competitiveness of the ISO New England's wholesale electricity markets as states procure ever-larger amounts of renewable energy, New England state regulators and merchant generators have asked the regional power grid operator to rethink how its market frameworks can accommodate states' clean energy and climate policies.

The New England States Committee on Electricity, or NESCOE, recently asked the ISO-NE to dedicate market development and planning resources in 2020 to support analysis and discussions within the New England Power Pool stakeholder process about potential future competitive market frameworks as the region's six states continue to implement clean energy and environmental policies. NESCOE said various market participants, including consumer interest groups and energy developers, have expressed a similar interest in holding such ISO-NE-supported discussions.

As the representative of state utility regulators, NESCOE acknowledged that "some states' increasing reliance" on energy procurements outside of the regional wholesale markets in furthering their state clean energy and climate goals "make a conversation about the objectives of the wholesale markets, and what we are collectively asking it to do, sensible."

The letter from NESCOE received support from the New England Power Generators Association, or NEPGA, which represents the region's competitive merchant generators.

Echoing concerns it raised in December 2018, NEPGA in a letter dated Aug. 13 again told the ISO-NE that the growing trend of states authorizing long-term power contracts outside the markets is preventing a number of generation resources from recovering their costs and as a result is threatening premature power plant retirements. These premature retirements not only endanger grid reliability but "could lead ISO-NE to take additional out-of-market action to maintain reliability, further damaging the competitive marketplace," NEPGA wrote.

NEPGA said it believes that New England's wholesale electricity markets are fast approaching "a tipping point" with respect to state-sponsored resources. A 2018 report commissioned by NEPGA indicated that state-sponsored resources are expected to become the largest single source of consumer electricity supply in New England by 2023 and to exceed 50% of the consumer electricity supply by 2027.

The ISO-NE repeatedly has warned of the reliability threats posed by New England's continuing shift away from a generation mix of "fuel-secure" nuclear, coal-fired and oil-fired power plants towards a generation mix of interruptible gas-fired generators, intermittent renewables and Canadian hydropower imports — all of which depend on "just-in-time" fuel deliveries or the weather. Those warnings come against the backdrop of the continuing issue of natural gas pipelines becoming constrained during the coldest days of winter.

'Where we need to go'

Clean energy advocates say they also welcome new discussions focused on how the region's competitive wholesale markets can be retooled as states continue to procure more renewables, such as offshore wind resources, to meet their climate goals.

Following the conclusion of the last stakeholder process seeking to address that very issue, the ISO-NE's most recent forward capacity auction, held in February for the commitment period beginning in June 2022, ran under new "competitive auctions with sponsored policy resources," or CASPR, rules for the first time. CASPR is a new two-step construct, with a secondary substitution auction that allows resources interested in retiring to transfer their capacity supply obligations to new state-sponsored resources that did not clear in the primary auction.

However, offshore wind developer Vineyard Wind LLC in April asked the Federal Energy Regulatory Commission to rerun the 13th forward capacity auction, or FCA-13, after the 800-MW Vineyard Offshore Wind Project was only able to secure an obligation for 54 MW in the substitution auction.

Meanwhile, to the dismay of generators, FCA-13 resulted in the lowest clearing price in six years at $3.80/kW-month, thanks in part to the participation of Exelon Corp.'s uneconomic gas-fired Mystic River 8 and 9 units, which acted as price takers. Against the wishes of NEPGA, the ISO-NE had directed that about 1,400 MW of capacity from those two units, which are located in Massachusetts, be retained for fuel security reasons under cost-of-service contracts.

"The last stakeholder process didn't really get us where we need to go," Bruce Ho, a senior advocate on the Natural Resources Defence Council's Sustainable FERC Project, said Aug. 15 in an interview. "The states have been forced to continue to go outside of the wholesale markets for clean energy resources because the wholesale markets, for the most part, aren't set up to account for environmental attributes."

In addition, a new ISO-NE inventoried energy program touted by the grid operator as complementary to its existing pay-for-performance winter fuel security program will take effect in 2023 after FERC lacked a quorum to act on the proposal and related tariff changes went into effect by operation of law. Critics such as Commissioner Richard Glick have panned the program as "an utter waste of ratepayers' money."

"These kinds of outcomes undermine faith in the market for a lot of us because we're actually going to pay more, and it's not clear what we're getting out of it," said Deborah Donovan, Massachusetts director at the Acadia Center, a group that advocates for clean energy in the region.

Donovan in an Aug. 16 interview added that any new discussions should examine whether embedding the cost of carbon emissions in the ISO-NE's wholesale market design would allow the grid operator to accommodate state climate policies and speed the exit of legacy generators. New York and that state's wholesale grid operator currently are considering such a policy, and regulators there on Aug. 8 also commenced a review of the New York ISO's capacity market products to examine their alignment with the state's ambitious renewable energy and emissions reduction goals.

"We expect to accommodate the requests for this important conversation about the future of competitive markets," ISO-NE spokeswoman Marcia Blomberg said in an Aug. 15 email.