ISO-NE publishes discussion paper on proposed solution to harmonize competitive markets and subsidized resources

ISO New England has published “Competitive Auctions with Subsidized Policy Resources.” This discussion paper details the ISO’s proposal to address concerns about subsidized new resources’ participation in the Forward Capacity Market and their potential effects, including depressed prices or excess capacity. Read highlights of the proposal published last week.

About the proposal

The ISO’s proposed solution would:

• Introduce a new two-stage, two-settlement process by adding a secondary market known as a substitution auction
• Provide financial incentives for existing, high-cost capacity resources to transfer their capacity obligations to subsidized new resources, then permanently exit the capacity market—akin to a “severance payment”
• Keep the market technology neutral

Next steps

The ISO looks forward to discussing this design with stakeholders with the objective of modifying the capacity market rules to address these goals. Because this proposed approach builds upon the existing FCM design, it should be technically straightforward for the ISO to implement. That should enable it to be implementable in the near-term (possibly for the thirteenth Forward Capacity Auction in February 2019).

Background

The ISO’s proposal is part of a regional stakeholder initiative begun by the New England Power Pool (NEPOOL) in the second half of 2016. The goal is to find ways to harmonize the competitive wholesale electricity markets that have served the region so well to date with the New England states’ actions to promote clean energy. To learn more:

• Visit Wholesale Markets and State Public Policy Initiative—a forum to discuss potential wholesale market design changes
• Read Accommodating State Clean-Energy Goals within the Competitive Marketplace about why long-term reliability depends on finding a solution