RENEW Protest to FERC Explains ISO Bias Against Renewables in Capacity Market

In a protest to the Federal Energy Regulatory Commission, RENEW Northeast explained how ISO New England’s proposal to give a no-bid contract to the Mystic 8 and 9 fossil fuel generation units will provide “undue” preference, advantage and prejudice prohibited by the Federal Power Act to those units at the expense of state policy resources like wind and solar. This discrimination will hinder attainment of state policy requirements and increase consumer costs.

The current Forward Capacity Market (“FCM”) rules subject new state-sponsored capacity resources to a Minimum Offer Price Rule (“MOPR”), which requires these sponsored assets to bid into FCM at an administratively determined price. The ISO believes that state-sponsored resources must be mitigated in the FCM to avoid a significant overbuild of the New England power system.  In its fuel security proposal, however, the ISO seeks to treat resources that have been retained for fuel security- not state sponsored resources- as price-takers in the FCA. The ISO asserts that treating fuel security risk units as price-takers “considers the contribution to resource adequacy of these resources when determining Capacity Supply Obligation (“CSO”) awards and setting the FCA clearing price,” and “will prevent the region from procuring more resources than are needed to meet its resource adequacy objectives.”  Of course, the same argument is true for state-sponsored resources. In requiring units having fuel security out-of-market agreements but not units having state-sponsored agreements to be price-takers in the FCA, the ISO is taking a position contradictory to its position on state sponsored resources and one biased against the contributions of state-sponsored resources. It is also one that gives “undue” preference and advantage to those retained fossil fuel units.

Should this provision enter the Tariff, it will join another aspect of the FCM design that disadvantages renewables which is the calculation of the CSO of variable renewable resources like wind and solar compared to generation with interruptible fuel like natural gas generation. While wind and solar are variable, the ISO operates an accurate forecasting system that renders a fleet of solar and wind resources dependable. Nevertheless, the CSO of variable resources is reduced to reflect actual wind and solar.  By comparison, all the factors that are driving the next round of fuel-security market improvements that the ISO must submit to the Commission by July 1, 2019, which are pipeline capacity limits and outages, disruptions that can accompany oil and LNG deliveries and limitations due to air emission permits, are limited to fossil fuel resources whose CSOs are not adjusted downward despite the limitations of their fuel sources.  The ISO’s lead-off memorandum to begin stakeholder discussions to meet the July 1, 2019, deadline states that the ISO will not be making any changes to the FCM, as it finds it is meeting its requirements for capacity, but will focus on energy market changes to address fuel security.  Although a CSO is designed to give the ISO a call-option on the energy from a capacity resource, the ISO apparently has no plans to reduce the CSO for resources they believe are causing the fuel security risk.

RENEW Supports ISO New England Interconnection Process Improvements

RENEW Northeast submitted comments to the Federal Energy Regulatory Commission in support of ISO New England’s filing requesting approval of Interconnection Process Improvements that will reduce the time needed to complete the Interconnection Studies for wind and inverter-based generators and should improve curtailment and performance issues in system operations for these types of generators.

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RENEW Supports ISO New England Rule Changes Benefiting Renewable Energy

On April 15, 2015, ISO New England submitted tariff revisions for the dispatch of certain wind and hydro resources, which are classified as Intermittent Power Resources under the market rules, using Do Not Exceed Dispatch Points. RENEW Northeast submitted comments on May 14 that strongly support the ISO’s proposal to implement a system for the real-time economic dispatch of wind and intermittent hydro resources that are not Settlement Only Generators. RENEW’s comments included nine minor recommendations to address a number of details about how this program will be implemented.

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RENEW Protests Market Rule Changes Harmful to Renewable Energy

On August 4, 2014, RENEW submitted a protest to the Federal Energy Regulatory Commission (FERC) concerning ISO New England’s compliance filing involving changes to the design of its Forward Capacity Market known as pay for performance. The ISO’s proposed tariff will create a perverse disincentive for renewable and other resources to curtail operations at exactly the moment when their energy is most needed while under-compensating resources that perform during periods when the power system is experiencing a shortage.

In its protest RENEW explains how state policy has created a fleet of efficient and low production cost wind resources in New England. Not fully compensating these resources for their production undermines the efficiency of the market and frustrates the policies and clean energy goals of the states.

ISO New England’s compliance filing was submitted in response to FERC’s May 30, 2014 Order that directed the ISO to address improper price signal caused by intra-zonal transmission constraints “because it incents a generating resource on the export side of the constraint to submit energy market offer prices that are below its actual marginal operating costs in order to be dispatched at the greatest quantity possible and thereby maximize its Capacity Performance Payment.”

Update: On October 2, 2014, FERC issued an Order agreeing with the arguments by presented by RENEW and other parties. The FERC found the evidence provided by these parties indicates that this incentive is less of a concern than the Commission understood based on the record in the underlying proceeding. The FERC directed the ISO to remove the proposed design changes that were harmful to renewable and other resources.

New England Wind Has Potential to Reduce Electricity Costs by $1 Billion Per Year

In March 2013, an interim update from ISO New England calculated the annual wholesale electricity cost to consumers (LSE Energy Expense) with 892 MW of wind on the system, which is very close to what is installed today and estimated to produce about 2510 GWh/year, to be $7.955 billion. If all wind resources active in ISO New England interconnection development queue at the time of the study were also built, which would bring the total wind capacity in New England to 3927 MW and estimated to produce 11565 GWh/year, it would drop total wholesale electricity costs to consumers to $6.881 billion. This represents a $1.074 billion/year savings compared with the amount of wind now on the ISO New England system. That is equivalent to savings of $354,000/year per additional MW of wind installed or $119/MWh of additional wind generation. Wind with its “free fuel” can lower wholesale energy prices. Some transmission system upgrades will be needed to achieve the level of savings and wind deliverability seen in the study but the costs of these upgrades should be considered against the energy cost reductions and reliability benefits created by completing these upgrades. For example, the $5 – $8 billion transmission cost estimate given in the 2010 NEWIS study was for a transmission build out that the NEWIS study found would be sufficient to integrate as much as 7 GW of wind (page 118 of the NEWIS report), meaning much less transmission should be needed to integrate 4 GW of wind.

The final Economic Study Report on page 75 (figure 6-53) and page 69 (Figure 6-22) shows the LSE Energy Expense to be essentially the same as the numbers given above. (The draft report gives the results in figures instead of tables, so the precise values can’t be determined, but appear to be the same as the above numbers.)

These numbers all assume natural gas prices between $4 and $5/MMbtu (lower for summer, higher for winter, (Figure 4-3). These gas prices reflect what was seen in 2011, but gas prices that year were the anomaly. Since 2011, we’ve seen much higher gas prices in the colder months. In December 2013, natural gas prices in New England averaged about $14/MMbtu (ISO New England Chief Operating Office report, January 10, 2014, slide 75). In February 2013, gas prices averaged about $17.50/MMbtu. When gas prices (and marginal electricity prices) go up, the savings from wind should also go up as increasingly expensive energy is displaced as depicted in the attached slide.

RENEW addressed these issues in a 2013 op-ed co-written with the Maine Wind Energy Association.

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