SPI News: ISO New England releases capacity market white paper

On October 22, ISO New England released a white paper detailing proposed changes to the Forward Capacity Market (FCM) aimed at increasing performance incentives for resources participating in the wholesale electricity markets. The ISO’s ongoing Strategic Planning Initiative has identified resource performance and flexibility as critical aspects of regional reliability.

In times when the electric system is highly stressed, and at the time of greatest need, many New England generators may not produce in accordance with their offered capabilities. The ISO is proposing FCM changes that would make each resource’s FCM payments contingent, in part, on its performance during times of high system stress. The white paper notes the FCM changes would, in effect, transfer FCM revenue from underperforming resources during scarcity conditions to overperforming resources.

In addition, the Strategic Planning Initiative addresses the challenges that arise from the region’s growing reliance on natural gas and the interruptible nature of natural gas delivery. The white paper details the importance of additional investment in “hardware, fuel arrangements, or other supplier-selected options” that could increase reliability. The proposed FCM modifications can provide additional incentives for generators to undertake these improvements. Some of these changes can also help balance the variable nature of additional wind power and other renewable resources, as the need for fast-ramping and reliable generation will continue to increase as more intermittent resources are brought on line.

The paper concludes that merely increasing the penalties for nonperformance would be inadequate to achieve the desired improvements. Instead, “the existing FCM penalty structure must be replaced by a new pay-for-performance” mechanism that includes meaningful incentives to meet expected performance during times of system stress.

Discussions on possible capacity market enhancements will begin at the NEPOOL Participants Committee meeting on November 2 and continue at the joint Markets and Reliability Committee meeting on November 16. The ISO hopes to bring the matter to a vote at the Participants Committee late next year in time for the changes to be implemented before the qualification process for FCA #9. An explanatory memo was released with the white paper as well.