New England state officials last week heard suggestions for how ISO-NE’s electricity markets could be altered to aid in the implementation of clean energy laws and decarbonization mandates.

The discussion Jan. 25 was part of the second of two public online technical forums to discuss reforms to the RTO’s wholesale market design held in response to a call from governors. (See New England Governors Call for RTO Reform.)

“There aren’t that many ways that states do it. There are different flavors,” said former FERC Commissioner Tony Clark, currently a senior adviser for energy and telecommunications clients at the law firm Wilkinson Barker Knauer. “But it’s not Baskin-Robbins. There aren’t 31 flavors of how states do this. …

“There are going to be some challenges that you might have depending on the path you take,” Clark said.

Clark said restructured states in ISO-NE and PJM are experiencing a “crisis” because of the perception that “the markets aren’t procuring the resources we prefer.” The response has been exploring ways to get “around” the markets, he said.

One of the advantages of traditional markets is that they are very responsive to state public policy choices, he said. Hybrid markets like MISO, SPP and CAISO also maintain vertically integrated utilities. Is there another type of market that can work?

“Are there ways to put the toothpaste at least partially back in the tube? I don’t know that we have a hard-and-fast answer to it, but I think this is the core of what [the New England states are] attempting to address,” Clark said.

What should be avoided, he said, is what he called “the California trap.” He said the blackouts that occurred in California this past summer were “as much as anything [a result of] this somewhat incoherent mix of public policies and regulatory structures, which weren’t designed to support resource adequacy and reliability.”

Alternative Designs

Independent energy consultant Steve Corneli said any successful energy market designed for rapid decarbonization would need to find efficient portfolios of complementary clean energy resources.

“The trick is coming up not just with the cheapest set of resources, but the resources that add up and work together to provide the lowest-cost electric system,” Corneli said.

Corneli said there are “hybrid” concepts emerging for electricity markets that use planning tools to identify reliable combinations of clean resources followed by competitive procurement to source the least-cost mix of resources. The combination could be termed as a “competitive IRP” or “configuration market.” Bids are elicited first and used as inputs to the planning tools to find the least-cost mix of projects based on available resources’ real costs. Winning projects are then awarded long-term, power purchase agreements. Such hybrid markets could solve resource adequacy, decarbonization and the least-cost resource mix without using “capacity” as the market product.

Kathleen Spees, principal at The Brattle Group, discussed both energy-only and integrated clean capacity markets. Spees said an energy-only market is popular because “it is probably the purest approach implementing an energy market and reflecting reliability needs through a market-based mechanism. It is an alternative to the capacity market used in New England.

“The energy-only market is a solution to achieve reliability. It doesn’t do anything to solve the carbon problem,” Spees said. “It doesn’t hurt. It doesn’t advantage fossil fuels over clean energy resources, but at the same time, it doesn’t help to achieve carbon abatement or reduction.”

An integrated clean capacity market would consist of one combined co-optimized auction. States would set their own policy goals and determine the amount of clean energy they want to do through the market.

States would also ” continue to have the role of ensuring that they have sufficient capacity for meeting reliability needs,” Spees said. Fossil fuel generators could still participate and sell capacity.

Casey Roberts, senior attorney at the Sierra Club, suggested voluntary residual capacity markets as a way to serve state decarbonization goals.

“Voluntary residual capacity markets are not intended to be a comprehensive solution to all of what ails the markets, but instead to focus on what I see as the most urgent problem, which is a New England resource adequacy construct that does not allow state policies on generation to be as effective as they should be in shifting the generation mix,” Roberts said.

The basic idea behind the voluntary residual capacity market is that a load-serving entity can meet all or part of its capacity obligation through contracts outside of the Forward Capacity Market, Roberts said. She added that if load-serving entities and their state regulators are satisfied with the FCM, they do not have to change anything about purchasing capacity.

Next Step

Connecticut Department of Energy and Environmental Protection Commissioner Katie Dykes said the next step is soliciting written comments on the topics covered during the two technical forums. Any comments submitted will be posted publicly on the New England Energy Vision website, and additionally, the states will issue a joint summary of the issues identified and explain the potential solutions. Comments will be accepted through Feb. 24.

“If you have some observations or want to express a concern or support for any of the comments that you’ve heard in the technical meetings, or bring any other perspective to our attention, we will value your investment of time,” Dykes said.

If comments support a particular market design or approach, even if those approaches were not discussed at the technical forums, they should include a high-level overview of the steps (including sequencing) necessary for implementation as well.

Additional scheduled technical forums include transmission planning (Tuesday) and governance reform (Feb. 25).