Wholesale electricity market costs fell in spring 2023, market monitor’s report says

Lower energy prices reduced the wholesale electricity market costs in New England in the spring of 2023, according to the latest quarterly report by ISO New England’s Internal Market Monitor (IMM).

A 57% reduction in energy market costs compared to spring 2022 was driven by a 69% year-over-year decrease in natural gas prices. This decrease continues the trend of lower gas prices seen in winter 2022/2023 and also reflected record U.S. natural gas production in April 2023.

The Spring 2023 Quarterly Markets Report, which covers the period from March 1 to May 31, presents an assessment of each of the region’s wholesale electricity markets, based on market data, performance criteria, and independent studies.

Highlights include:

• The total estimated wholesale market cost of electricity for spring 2023 was $1.40 billion, a significant decrease of 49% compared to spring 2022.
• Energy costs totaled $0.90 billion; down 57% (or $1.19 billion) from spring 2022 costs.
• Capacity costs totaled $423 million, down 21% from the previous spring. The decrease was attributed to lower capacity clearing prices from the thirteenth Forward Capacity Auction (FCA 13), in which new lower-priced capacity displaced higher-priced existing capacity. The payment rate for new and existing resources in spring 2023 was lower, at $3.80/kW-month, compared to $4.63/kW-month in spring 2022.
• Recent research conducted by the IMM has highlighted concerns about unusually high clearing prices for certain reserve products in the Forward Reserve Market, compared to previous years. This research has prompted the IMM to recommend changes to the existing offer cap. In forward reserve auctions, supply offers are subject to a price cap to maintain fairness and competitiveness. However, the IMM’s research underscores that the current price cap, last adjusted in 2016, may inadvertently enable prices to escalate beyond reasonable bounds. To address this issue, the IMM is advocating for a review and adjustment of the reserve supply offer cap, suggesting a revised limit from $9,000 per megawatt, per month to approximately $6,600 per megawatt, per month. This proposed change aims to establish a more equitable framework for supply offers, safeguarding against excessive pricing and market manipulation.