Chart: Current summer capacity in New York

US energy capacity markets are in flux as energy shifts toward renewables

Power grid operators, market participants and stakeholders in the eastern United States are in the process of updating capacity market designs to take into account the increasing share of renewable energy entering these markets. Key issues include a fair evaluation of the capacity each resource provides to the system, and how that capacity contributes to reliability.

Independent system operators in New England and New York and PJM Interconnection operate power markets that collectively pay billions of dollars for power generators in exchange for a commitment to supply power at a future date. ISO-NE and PJM operate the three-year future capacity markets and NYISO operates the short-term capacity market.

These markets were initially designed when the resource mix consisted mostly of thermal generation resources such as coal, natural gas and nuclear power, with some hydropower on the renewables side. However, state-level policies designed to address climate change by significantly reducing greenhouse gas emissions using wind and solar power, along with a corporate-level focus on environmental, social, corporate and decarbonization, are changing the mix Significant power generation resources.

Thermal resources and hydropower have higher capacity factors – the proportion of energy produced by a generating unit for a given period compared to the energy that can be produced at full capacity during the same period – than intermittent renewables.

Jason Borwin, vice president of energy storage at the American Clean Power Association trade group, told S&P Global Commodity Insights.

“The second part of the conversation is that we’re facing real-world cases of extreme weather affecting similar types of resources with poor outcomes,” Burwin said.

He said comparisons of apple capacity to apples in the midst of a changing supply mix combined with extreme weather events come together in a conversation about how to assess resource adequacy in this new environment.

new trends

This energy shift towards much larger volumes of renewables has prompted power system operators to implement new approaches to measuring the value of the capacity of renewable energy resources using load-carrying capacity methodologies. PJM is implementing the ELCC approach in its capabilities market, and NYISO is taking a similar approach and is being studied by ISO-NE.

ELCC is a dynamic method for reliably measuring the contribution of resources to service load.

Understandably, fair implementation of the new market rules using ELCC has been chaotic in some cases.

For example, a group of PJM power generators has called the potential for renewable energy resources questionable, saying that capacity volumes cleared in previous auctions have been exaggerated, and setting up disagreement over who should pay for future transportation upgrades.

The recent debate over PJM’s market capacity revolves around whether wind and solar energy resources have received greater capacity commitments than they can deliver. The PJM Power Providers Group, or P3, said in a statement issued by the PJM Power Providers Group, or P3, that certified wind and solar power plants have been listed and cleared at previous capacity market auctions and have been included in the supply pool for the 2023-2024 auction. Letter to the PJM Board of Directors.

The group suggested that PJM should remove these wind and solar resources from its June capacity auction. P3 lists dozens of members on its website, including Calpine, Vistra, Tenaska, NRG, LS Power, and others.

However, a group of stakeholders representing renewable energy interests responded with a letter of their own to the PJM Board of Directors which argued that the crux of P3’s complaint is that PJM considers the full historical outputs of intermittent resources when determining the value of its capacity, with P3 asserting that this long-standing practice violates in a way What defines PJM and increases the imminent reliability risk.

The PJM Board of Directors responded to each of the stakeholder groups in a letter in March saying that PJM had reviewed P3’s claims regarding the implementation of the ELCC methodology and the adoption of renewable resources and determined that its ELCC implementation was “in accordance with the Reliability Assurance Agreement.”

Debate continues over the possibility of delivering renewable energy resources, but renewable energy resources were not removed from the capacity auction in June. The discussion is shifting the focus toward transmission upgrades needed to increase deliverability.

The New York grid operator recently got an ELCC proposal approved by the Federal Energy Regulatory Commission. In the compliance profile, NYISO defended its approach to determining the marginal reliability contributions of capacity resources using the ELCC methodology.

Part of the stakeholder discussion about capacity market base changes focused on whether the ELCC’s marginal or mean approach should be adopted. PJM chose to use the median approach, while NYISO suggested the marginal approach.

Reliability Concerns

The latest development in New England’s capacity market came as the American Clean Energy Association and a group of other clean energy companies asked FERC to address ISO-NE market rules allegedly favoring gas-fired power generation resources.

ISO-NE warned in December 2021 that natural gas pipeline restrictions could threaten the six-nation grid operator’s power system during extended periods of very cold weather.

Nearly half of all power generation resources within the ISO-NE footprint use gas as their primary fuel, and gas-fired power plants currently generate nearly half of the region’s total annual electricity consumption.

Diagram: ISO NE . Power Source

New England also relies heavily on gas supplies for home heating, with local gas distribution companies typically having long-term fixed delivery contracts that give them priority over power generators when pipeline capacity is limited.

The concern is that gas-powered capacity resources—unlike other types of resources, such as nuclear or hydroelectric generators—are not required to demonstrate that they have access to an adequate fuel supply when they receive a real-time dispatch order from ISO-NE, according to the March complaint.

“ISO-NE assumes that fuel is always available to a natural gas resource, including only a gas resource that is actually at significant risk from natural gas and constrained pipeline availability during cold winter conditions,” the groups told FERC.

An ISO-NE spokesperson said stakeholders are already working on reviews of the network operator’s capability certification methodology. ISO-NE expects to submit the proposed changes with FERC before the 19th Future Capacity Auction, scheduled for January 2025 and covering the 2028-2029 commitment period.

“Capacity certification continues to emerge at FERC, and in previous conversations FERC has made it clear that they are paying attention,” said ACP’s Burwen.

“The important thing is to ensure that market rules maintain reliability and do not give undue preference to any particular resources,” he said.

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