ISO-NE’s winter wholesale market costs totaled $1.8 billion, a 32% decrease from the previous winter because of lower energy and capacity costs, the RTO’s Internal Market Monitor said in its quarterly markets report released last week.

“The headline for winter 2020 is that it was a very mild winter, with low-priced gas and low load levels,” IMM economist Donal O’Sullivan told the New England Power Pool Markets Committee on May 12.

[Note: Although NEPOOL rules prohibit quoting speakers at meetings, those quoted in this article approved their remarks afterward to clarify their presentations.]

Average day-ahead and real-time Hub LMPs were $30.32 and $29.97/MWh, respectively, with the lower prices resulting from three primary factors, O’Sullivan said.

“Firstly, we had milder temperatures and an absence of very cold periods, which we like to call cold snaps, such as the region experienced in 2018. Secondly, we had low average natural gas prices, which at $3.40/MMBtu was down 41% from the prior winter’s price,” he said.

The low gas prices stemmed from declines at the supply basins, where year-on-year production increases outstripped demand increases, he said.

“And finally, downward pressure on energy prices also came from increased energy efficiency and additional behind-the-meter solar generation,” O’Sullivan said.

On the capacity side of wholesale costs, payments of about $751 million were also down 24%, a $242 million drop from a year earlier, he said.

Winter 2020 was the third quarter of the Forward Capacity Auction 10 commitment period, with clearing prices of $7.03/kW-month for Rest-of-System, compared with an FCA 9 price of $9.55/kW-month.

Gross real-time reserve payments totaled $1.8 million, a 40% decrease from the same period a year ago, with 97% of those payments going for the 10-minute spinning reserve (TMSR).

“This winter, there were 394 hours of non-zero reserve pricing, compared to 297 hours last winter. Despite there being more hours, payments were lower, with the average TMSR price of $7.56/MWh down from $16.31/MWh last winter,” he said.

There were just 35 minutes of non-zero 10-minute non-spinning reserve (TMNSR) this winter and no instances of 30-minute operating reserve (TMOR) pricing during the season, he said.

“This is similar to previous winters where there were very few or zero hours of TMOR and/or TMNSR pricing,” O’Sullivan said.

Energy market opportunity costs (EMOC) were $0/MWh during the winter, a feature implemented last year in reference levels in order to let the market preserve limited oil inventories for times when gas supply is low during extreme cold weather, he said.

For this winter, the EMOC values were updated prior to the real-time market opening to reflect the latest fuel prices, and the brief periods of cold weather allowed sufficient gas supply to ensure that EMOCs never rose above zero for any hour and had no impact on energy prices, he said.

CASPR the Ghost

ISO-NE’s Competitive Auctions with Sponsored Policy Resources (CASPR) substitution auction did not proceed this year despite 14 existing resources with a combined capacity of 445 MW having elected to participate.

The CASPR initiative for the FCAs was implemented two years ago to prevent consumers from paying twice for the same capacity through both the Forward Capacity Market and subsidies for state-mandated new supply resources. The initiative is also intended to reduce the possibility that capacity prices will be depressed below competitive levels by large quantities of unmitigated new subsidized resources entering the market.

In FCA 14 in February, while there were 292 MW of supply seeking to acquire capacity supply obligations (CSOs), there was no demand because the existing capacity resources either exited the auction without a capacity obligation or the RTO deemed them ineligible because their test price was greater than the FCA clearing price, O’Sullivan said. (See ISO-NE Capacity Prices Hit Record Low.)

“I think the design of this [CASPR] does need to be re-evaluated as to whether as designed it can actually achieve the goals it was meant to achieve,” said Abigail Krich, president of Boreas Renewables. “Just because the region is long on capacity doesn’t mean that it’s not appropriate to have an organized way for resources that are trying to exit the market to trade their CSOs to resources that are trying to come in.”

Recalculating Net CONE for FCA 16

Market development analyst Deborah Cooke led discussion of the RTO’s proposal for updating the cost of new entry (CONE) and net CONE calculations, and recalculating existing and establishing new offer review trigger prices (ORTPs) using updated data for FCA 16, to be held in 2022 to cover the 2025/26 capacity commitment period.

CONE estimates the cost to build a new resource in New England, while net CONE indicates the net revenue needed by the resource to be economically viable. ORTPs are low-end estimates of net CONE for specific — and less common — technologies.

The RTO plans to work with stakeholders to review and estimate the impacts of two recently proposed market changes on the FCM parameters — the sunset of the Forward Reserve Market in 2025 and the Energy Security Improvements (ESI) filed with FERC in April.

The most recent recalculation was performed in 2016 for FCA 12. Historically, values are updated triennially, but the scheduled review was deferred one year to 2020 to allow for concurrent updates of two new related FCM parameters: dynamic delist bid threshold and performance payment rate, and the inclusion of estimated ESI revenues.

ISO-NE’s plan for sunsetting the Forward Reserve Market in 2025, presented earlier in the meeting, calls for a vote in July, so the RTO will bring related values to the committee in June.

The RTO proposes to file any calculation changes with FERC by Dec. 1.

ESI Timing

ESI would allow the RTO to procure energy call options for three new day-ahead ancillary service products to improve the region’s energy security, and option awards would be co-optimized with all energy supply offers and demand bids in the day-ahead market. (See ISO-NE Sending 2 Energy Security Plans to FERC.)

A FERC order on the ESI filing is expected by Nov. 1. One reason for a Dec. 1 filing is that the net CONE value is used early in the process for FCA 16, during the retirement and delisting window, and that window usually opens and closes near the beginning of March.

The RTO is estimating ESI revenues, given that the filing has two different proposals, one from the RTO and one from NEPOOL, and given the possibility that the commission might order some third way or a blend of the two.

Regarding new technologies such as continuous storage facilities, the RTO is modeling three new technology types for potential ORTPs: standalone batteries, co-located facilities with solar PV and offshore wind, according to the presentation.

Interdependencies between the various FCM parameters dictate the order in which they are calculated, and a memo from Mark Karl, ISO-NE vice president for market development, provided more detailed information on the various parameters and their interdependencies.

Concentric Energy Advisors Analysis

Engaged by the RTO to support the updates, Concentric Energy Advisors’ Danielle Powers, Meredith Stone and Keith Paul presented a preliminary analysis of the net CONE and ORTP recalculations. Their findings conclude that simple cycle and combined cycle gas turbines are primary candidates for CONE calculation based on established criteria, and that other renewable, energy efficiency, demand response and gas-fired generation are primary candidates for ORTP calculation.

Powers said the application of the screening criteria to see whether CONE recalculation applies “should be consistent with the order given by FERC in 2017 [ER17-795], which is that net CONE should be high enough to attract new entry, but not so high as to introduce unnecessary costs.”

Paul addressed the various technologies, including biomass, which are considered a niche area because there are few such facilities expected to be constructed or entering the interconnection queue in the near future.

Biomass facilities are typically smaller units with dedicated supply chains and tend to be either site-specific or regionally specific. For example, a unit in one state actually has a supply chain that covers the entire New England region and somewhat beyond in order to supply adequate wood to the facility.

Concentric’s analysis found that paper mill combined heat and power facilities would not be a good application for a CONE or an ORTP calculation because of the variability of the energy output.

Concentric will continue its evaluation and analysis of technologies for CONE and ORTP calculations. In addition, the analysts will bring back to the committee in June preliminary technology costs for the calculations, determination of ORTP technologies and indicative FRM revenue-offset component values.