THE NEW ENGLAND power grid operator filed a proposal with federal regulators on Monday seeking more time to come up with a system for incorporating clean energy into the region’s electricity markets.
The grid operator, known as ISO-New England, asked the Federal Energy Regulatory Commission for permission to put off until 2025 plans to do away with a 2013 pricing rule intended to prevent subsidized clean energy projects from unfairly squeezing other power generators (most of whom burn fossil fuels) out of the market. ISO-New England had previously planned to do away with the pricing rule next year.
Environmental advocates are opposing the move. “This decision throws an unnecessary lifeline to gas generators that could otherwise be priced out of the market by cost-effective clean energy,” said Melissa Birchard, senior regulatory attorney at Acadia Center.
The arcane issue is attracting attention because it is another example of the tension between those eager to abandon fossil fuels in a bid to deal with climate change and those wary of doing so too quickly out of fear of market disruptions.
ISO-New England oversees the region’s wholesale markets for electricity. In one of those markets, the forward capacity market, ISO-New England forecasts how much electricity the region will need three years in the future and then encourages power generators to bid to supply it. Power plant operators use the promise of this future revenue to build, maintain, and operate their plants.
The forward capacity market is under stress because states like Massachusetts, operating outside the market, have ordered utilities to purchase offshore wind and hydroelectricity, with their ratepayers picking up the cost of the projects.
The challenge for ISO-New England is how to incorporate these ratepayer-subsidized renewable energy projects into the forward capacity market without undermining it. Letting the renewable energy projects into the market could squeeze out other generators needed for the system’s future reliability. Keeping the renewable energy projects out of the market could mean the market may be procuring more power than it actually needs.
Since 2013, ISO-New England has adopted what it calls a minimum offer price rule – allowing the subsidized projects to bid into the forward capacity market but at their unsubsidized cost. This approach puts all the generators on more equal footing, but it can be inefficient from a market standpoint. Many renewable resources not allowed into the market get built anyway, so consumers end up paying for capacity they don’t really need.
“While there is no evidence that this potential inefficiency has harmed consumers to date, that potential is clearly looming as state procurements ramp up,” ISO said in a statement accompanying its filing with FERC.
Vineyard Wind, the nation’s first industrial-scale offshore wind farm, offers a glimpse of how the existing set of rules are working. Vineyard Wind is scheduled to go live next year with 249 megawatts of qualified capacity, but not all of that capacity has cleared the market under the existing rules. The project has been bidding into the forward capacity market for the past three years — clearing 54 megawatts for 2023-2024, 101 megawatts for 2024-2025, and 156 megawatts for 2025-2026.
The ISO-New England says it intends to come up with better pricing rules by 2025 and in the meantime will grant exemptions from the minimum price rule for 700 megawatts of renewable resources — 300 megawatts next year and 400 megawatts the year after. (The combined 700 megawatts of is a sizable commitment, the equivalent of projects with a nameplate capacity of 2,000 megawatts. Nameplate capacity is the amount of electricity a project can theoretically deliver under optimum weather conditions; the 700 megawatts is the amount of electricity projects could deliver at any given time.)
Officials at the Federal Energy Regulatory Commission have been pressuring ISO New England to do away with its minimum offer price rule. Their chief complaint is that the rule is too broad, applying to all new resources and not just those resources capable of manipulating market prices.
“The minimum offer price rule appears to act as a barrier to competition, insulating incumbent generators from having to compete with certain new resources that may be able to provide capacity at lower cost,” said FERC commissioners Richard Glick and Allison Clements in a filing in January.
Now FERC will have to decide whether to grant more time to ISO-New England to do away with the minimum price rule or demand swifter action.
Read the full article in CommonWealth Magazine here.