New sloping curves more effectively balance reliability and economics in establishing capacity commitments
On June 28, 2016, the Federal Energy Regulatory Commission (FERC) issued an order accepting the joint proposal by ISO New England and the New England Power Pool (NEPOOL) to implement enhanced system-wide and zonal demand curves for the Forward Capacity Market (FCM), beginning with the eleventh Forward Capacity Auction in 2017. As part of the accepted proposal, a transition mechanism will reduce potential abrupt changes resulting from the new curves. The ISO and NEPOOL submitted the proposal on April 15, 2016.
Every year, ISO New England holds a capacity market auction to meet projected resource needs three years in the future. Resources that clear in the auction are obligated to be available in that future year. The enhanced system-wide and zonal demand curves aim to ensure that the auction: 1) acquires sufficient capacity to meet the region’s reliability requirements; 2) provides sufficient compensation to suppliers to ensure adequate investment in the long term; and 3) allocates capacity procurement among the region’s zones in the most cost-effective manner. The new demand curves are convex, and will replace a previously downward-sloping linear demand curve for the region and vertical demand curves for capacity zones. This is designed to give more accurate prices by reflecting the marginal reliability impact (MRI) associated with adding capacity in specific areas of the power system.
The new system demand curve will be implemented over several auctions, and the transition period could last as long as three auctions or could be cut short under certain circumstances. The goal of this transitional period is to avoid an abrupt change to the demand curve, a fundamental aspect of the annual capacity auction, and thereby avoid a shock to the market that could undermine investor confidence. The phased implementation of the new system-wide and zonal demand curves will begin with the next Forward Capacity Auction in February 2017 for the 2020/2021 capacity commitment period.
Learn more by viewing the FCM Sloped Demand Curve Key Project webpage.