Vice President of Procurement
As we head into the summer season, we again focus on the fact that the Annual System Peak will occur in June, July, or August, and Capacity Tags will be established effective for June 2023 – May 2024. Since 2009, the Freedom Energy team has been dedicated to assisting its customers on when to curtail electricity use to reduce their capacity tag resulting in lower capacity costs.
The Annual System Peak is the single hour that results in the highest demand for electricity in the calendar year New England wide. The electricity for that demand must be produced instantaneously, and the ISO-NE must ensure that it has adequate generation to meet that peak demand. New England is a summer peaking region due to cooling, air conditioning, and dehumidification; therefore, the Peak will most likely occur in June, July, or August on an extremely hot and humid day.
- While we have seen a significant decline in annual energy use over the past 15 years, the Annual System peak has remained relatively consistent, as shown in the graph below. It means that hot, humid weather is still the driver for demand despite reduced overall annual use.
- In recent years, the Peak has shifted from predominantly hitting in the 2:00 PM – 3:00 PM hour to later in the afternoon, with two of the last three years occurring at the 5:00 PM – 6:00 PM hour. The gradual increase in behind the meter solar installations over the past several years has reduced demand when they are at peak output in the middle of the afternoon, forcing the Peak later in the day.
- ISO-NE is indicating that the weather has been more volatile and less predictable the past few years. That means that they will have a more difficult time forecasting projected demand, one of the main parameters we use to evaluate a potential curtailment day.
- Each year brings additional complexities and challenges in successfully predicting the Peak and minimizing the number of notices we send. Although Peak demand has been relatively consistent each year compared to annual use, ISO-NE forecasts that energy efficiency measures and behind-the-meter solar installations combined will reduce peak demand this summer by approximately 3,000 MW. However, ISO is forecasting peak demand to be between 24,686 and 26,416 MW, depending on the weather. The low prediction is higher than four of the past eight years. The high prediction puts it above all peaks in the past eight years.
What is a Capacity Tag?
Every electricity account has a Capacity Tag (Cap Tag) associated with it based on the account’s demand for electricity during the Annual System Peak. Capacity has a cost to ensure that the ISO has a sufficient supply of electricity to meet the Peak demand. End users pay for capacity as part of their electricity supply price to compensate the generators.
ISO establishes the base cost of Capacity (Net Regional Clearing Price) through an annual auction three years in advance of the capacity year. That capacity price is adjusted to reflect each year’s Annual System Peak to align with the amount of generation resources to be paid that cleared in the Auction.
How can you reduce your Capacity Cost?
If you have an interval account (the meter reads hourly usage data) and can curtail your electricity use during the Annual System Peak hour, your Cap Tag and Capacity Cost would be reduced. The more electricity use you reduce, the greater the cost reduction. If you have recently entered into a multi-year all-inclusive fixed-price contract that does not have a provision for capacity reduction, curtailing this summer is likely not necessary, but you should confirm the details with your Freedom Energy advisor.
How will you know when to curtail?
Freedom Energy sends notices each year when we believe the Annual System Peak might occur.
By monitoring and analyzing grid conditions, weather forecasts, and historical data, we try to predict when a particular day could result in the Peak. You will likely receive a notice one to two days in advance as a preliminary heads up, then a confirming notice the morning of the anticipated day. On average, we have sent three notifications each summer. In most years, the first heat wave in June has necessitated notification, which then sets a target Demand to be exceeded for subsequent notices. Notices will likely indicate to curtail between the hours of 4:00 PM-7:00 PM but be prepared for possible changes to that period as data necessitates.
In the past 21 years, the Peak has never happened in September and only three times in June, including last year’s Peak on June 29th.
On May 19, NOAA issued the Three-Month Seasonal Outlook for June, July and August forecasting a 60-70% chance of above average temperatures for all of New England, eastern NY and PA, NJ and DE. They will update the forecast by mid-June.
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