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ISO-NE chief on 2-step capacity market: 'There isn't a better solution'

The head of the ISO New England Oct. 21 defended the grid operator's new two-step capacity market design as the best way to accommodate state-supported clean energy resources without leaving merchant generators stranded.

"I can tell you, there isn't a better solution than what we've invented right now that would balance those interests," ISO-NE President and CEO Gordon van Welie said in an interview with S&P Global Market Intelligence on the sidelines of the inaugural EnVision Forum energy summit in Lexington, Ky.

The event was jointly hosted by Federal Energy Regulatory Commission Chairman Neil Chatterjee, a Lexington native, and the University of Kentucky Center for Applied Energy Research.

Van Welie's comments come as New England state regulators and merchant generators have asked the six-state regional power grid operator to rethink how its market frameworks can accommodate states' clean energy and climate policies.

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 that applies a minimum offer price rule, or MOPR, that generally screens out state-supported clean energy resources. A secondary substitution auction then allows legacy resources such as fossil fuel-fired generators that are interested in retiring to transfer their capacity supply obligations to new state-sponsored resources that did not clear in the primary auction.

The results of ISO-NE's latest auction — which were contested by merchant generators, an offshore wind developer, and consumer advocates — went into effect by operation of law in September after FERC lacked the minimum three-member quorum needed to vote on the results of that auction (FERC docket ER19-1428). Offshore wind developer Vineyard Wind LLC, a joint venture between Avangrid Renewables LLC and Copenhagen Infrastructure Partners K/S, had specifically asked FERC to rerun the auction after the 800-MW Vineyard Offshore Wind Project was only able to secure an obligation for 54 MW in the substitution auction.

Despite the contested auction results, van Welie Oct. 21 maintained that the 54 MW of traded capacity supply obligations represented a step forward. "It's too early to know how well it's going to work," van Welie said. "I think it will work over time, but you have to be patient with it."

Van Welie nevertheless said the grid operator may need to consider extending the period of time during which older generators considering retirement can trade their capacity supply obligations with state-supported resources. "It may not work without some time delays because you've got to wait for people to trade with each other," he said.

A more "elegant" solution to the challenge would be to accurately price carbon within the wholesale market, but the New England region currently lacks the stakeholder support needed to institute such a pricing mechanism, van Welie added. "Maybe eventually as a region, we'll warm up to carbon pricing because I think what that does is it makes a MOPR irrelevant," he said.

Meanwhile, van Welie said he is hopeful the New York ISO will blaze a trail for other grid operators to follow by implementing a carbon price in its own market. Earlier this month, NYISO released a study asserting that carbon pricing is the most cost-efficient and fastest way for the state to achieve a carbon-free power system by 2040, as sought by recently enacted legislation.

"We're hoping that they're going to show us the way," van Welie said.