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New York City capacity prices drop 29% in latest summer strip auction

Thelatest New York ISOinstalled capacity auction yielded a $10.99/kW-month price for the summer strip2016 in New York City, down 29% from $15.50/kW-month in 2015, to its lowestpoint since 2009.

Thesummer strip auction, or summer capability period auction, is held at least 30 daysprior to the capability period, which stretches from May through October forthe summer capability period and November through April for the wintercapability period.

Pricesin the latest summer strip auction also steered lower at the Lower Hudson Valley'sG-J locality, which eased almost 3% from $8.50/kW-month in 2015 to$8.25/kW-month in the latest auction, as well as at NYISO's Long Island zone,where prices fell more than 21% from $5.30/kW-month last year to $4.15/kW-monthfor summer 2016.

Howeverprices in the rest-of-state, or RoS, region, nudged 3.4% higher from$3.50/kW-month in the 2015 summer strip auction to $3.62/kW-month this year.

Accordingto analysts with UBS Securities LLC, the clearing prices were in line with mostexpectations.

"Theresults from the latest capacity auction are largely in-line with ourexpectations pointing towards a more negative point of view on pricing,"UBS analyst Julien Dumoulin-Smith wrote in an April 5 research report,"Summer Heat Melts Big Apple Capacity Pricing."

 Longer term, "We continue to express amore depressed outlook for the downstate regions in NYC and Lower Hudson Valley(LHV) as supply parameters and new capacity provide a lid on prices," henoted. "We emphasize current prices limit the ability for mitigated assetssuch as the NJ-NY Hudson Transmission Partners (HTP) project from continuing toclear."

UBSattributed the big drop in New York City pricing to the latest auctionparameters, which showed a "substantial reduction of 'in-city' requirements."

"Wesee the results as supportive of upstate generators [ and ] while a morecautious datapoint on the fickle nature of highly-sensitive NYC capacity prices(principally NRG EnergyInc.)," Dumoulin-Smith wrote.

Analysisby UBS shows that 2017 could see potential upside for the Rest-of-State marketas there remains a clear potential for capacity retirements, specificallynuclear.

"Clarityon asset decisions should grow this summer around the potential success of thenascent 'Zero Emission Credit' (ZEC) program in the state and NY's ability tocut a deal to keep [EntergyCorp.'s] 850 MW FitzPatrick station open with a contract to supportits cash flows," Dumoulin-Smith wrote. "We see a general upward biason capacity price trends downstate, albeit with a soft cap at the$5.50-7.00/kW-mo level cap driven by arbitrage across capacity exports with NewEngland."

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Despitethe pull back in most locations, prices – especially in New York City – remainstrong relative to surrounding capacity markets. In terms of megawatt-days,summer strips in New York City cleared the latest auction at $361.32/MW-daywhile Zone G-J cleared at $271.23/MW-day, Long Island cleared at $136.44/MW-dayand RoS cleared at $119.01/MW-day. By comparison, 's seventh ForwardCapacity Auction heldin February 2013, which covered the capacity commitment period of June 1, 2016,to May 31, 2017, cleared at a price of $3.15/kW-month, or about $103.56/MW-day.PJM InterconnectionLLC's tenth Base Residual Auction, also held in 2013 covering thedelivery period of June 1, 2016 to May 31, 2017, in an RTO clearing price of$59.37/MW-day, which is equivalent to about $1.81/kW-month.

SNL Energyis an offering of S&P Global Market Intelligence. Market prices andincluded industry data are current as of the time of publication and aresubject to change. For more detailed market data, including power, natural gas and coal indexprices, as well as forwards and futures, visit ourCommodities Pages. For more detailed capacity market data, visit our CapacityMarket Pages.