ISO-NE releases updated discussion paper on the role of the capacity market in ensuring a reliable, renewable energy future

On October 30, 2015, ISO New England released the discussion paper, The Importance of a Performance-Based Capacity Market to Ensure Reliability as the Grid Adapts to a Renewable Energy Future. The paper has been updated from the original version published in June to include stakeholder feedback. The purpose of the paper is to inform discussions with the New England Conference of Public Utilities Commissioners (NECPUC), the New England States Committee on Electricity (NESCOE), and the New England Power Pool (NEPOOL) about the interaction of competitive wholesale electricity market design and state policy objectives for renewable energy.

The discussion paper describes the magnitude of renewable energy coming onto the system because of state policies and how:

• Renewable resources have no fuel costs and are therefore generally dispatched ahead of conventional generation, such as gas-, coal- and oil-fired resources.
• These resources will put downward pressure on energy market prices and in turn put upward pressure on capacity market prices to ensure an adequate amount of conventional resources stay viable.
• The capacity market will therefore play a key role in ensuring that reliability is maintained as increasing levels of renewables are integrated onto the system.

The region has already seen the impact of low natural gas prices on the energy markets with the increase in non-gas generator retirements. Renewable energy will become an ever-more-significant factor as these resources, with zero fuel costs, reach higher levels of penetration.

The capacity market will also be critical for energy storage resources. Storage resources have high capital and fixed costs and rely on daily energy market price arbitrage to recover those costs. As the penetration of renewable resources grows, it is likely that the average price differential between the day and the night will be reduced, therefore reducing the revenue opportunity for merchant storage technologies that depend on buying energy when prices are low (at night) and injecting energy when prices are high (during the day, or during scarcity conditions). 

On October 9, 2015, Robert Ethier, ISO New England’s Vice President of Market Operations, presented on the discussion paper at the New England Consumer Liaison Group. View his presentation.