Dan Cwalinski
Director of Contracts and Pricing
Freedom Energy
On February 11, 2021, ISO-NE published the results of Forward Capacity Auction 15 (FCA 15), which wrapped up on February 8, 2021. is auction covers the capacity commitment period from June 1, 2024 through May 31, 2025.
The purpose of the Forward Capacity Market (FCM) is to send price signals to the market that maintain existing capacity resources and attract new capacity resources when and where they are needed in ISO-NE. is is important to rate payers because the structure of the ISO-NE FCM also provides visibility into the expected cost of capacity three years in advance of when it’s utilized, and that capacity cost is part of what suppliers use to determine rates.
The Forward Capacity Auction (FCA) is the mechanism used to send those price signals to the market. e annual auction has capacity resources compete to obtain a capacity supply commitment for a specic capacity commitment period, in exchange for a market-priced capacity payment. In the FCA format, the price for capacity starts high enough to attract more than enough resources to meet the capacity requirements of ISO-NE and then is decreased until the quantity of capacity remaining in the auction equals the quantity of capacity needed (supply meets demand).
Forward Capacity Auction 15 ended with the following Capacity Payment Rates by Capacity Zone:
Southeast New England – $3.980/kW-Month
Northeastern Massachusetts/Boston (NEMA)
Southeastern Massachusetts (SEMA)
Rhode Island
Rest of Pool – $2.611/kW-Month
Western Central Massachusetts (WCMA)
Connecticut
Northern New England, Maine as a nested capacity zone – $2.477/kW-Month
Vermont
New Hampshire
Maine
These FCA 15 clearing prices are higher than what cleared during FCA 14 for the capacity commitment period from June 1, 2023 through May 31, 2024. Some factors attributable to the higher capacity clearing prices are:
- An increase in the Net Installed Capacity Requirement (NICR) from 32,490 MW in FCA 14 to 33,270 MW in FCA 15, which was up 780 MW. e NICR is essentially the amount of capacity that is to be procured through the auction.
- Existing qualified resources, or the lion’s share of pool used to meet that capacity requirement is down to 33,509 MW from 34,598 MW. is is in large part due to the retirement of the Mystic 8 and 9 units which totaled about 1,413 MW of natural gas-red capacity.
- Increases to the Net Cost of New Entry, which is an estimate of capacity revenue needed by a new generator in its rst year of operation to make it economically viable to build a power plant in New England. FCA 14 was $8.187/kW-month whereas in FCA 15 it was $8.707/kW-month.
- The increase in penalty rates from $3,500/MWh (June 1, 2021 thru May 31, 2024) to $5,455/MWh (June 1, 2024 and thereaer) as part of the Pay for Performance Incentives.
Forward Capacity Market – Auction Basics
The annual FCM auction is held 3 years before each capacity commitment period to provide time for new resources to be developed. Capacity resources can include traditional power plants, renewable generation, imports, and demand resources such as load management and energy-efficiency measures. Resources that clear in the auction will receive a monthly capacity payment in that future year in exchange for their commitment to provide power or curtail demand when called upon by the ISO. Resources that fail to meet their capacity commitment during a shortage event must refund part of their capacity payment; this refunded money goes to resources that over-performed during the shortage event. e capacity market is separate from the energy market, where resources with and without a capacity commitment compete on a daily basis to provide power and are paid for the electricity they produce.
Connect With Us