By Michael Kuser

WESTBOROUGH, Mass. — A new analysis by ISO-NE shows that increasing carbon allowance prices from $24/short ton to $64/short ton would boost the region’s LMPs by more than 30% under all six scenarios studied.

The RTO added the new sensitivity in response to stakeholders who said the $24/short ton (2015 $) allowance price used in an earlier version of the 2016 Economic Study was too low to drive the investments needed to meet greenhouse gas reduction goals. The $64 figure is based on the federal government’s estimated social cost of carbon.

Michael Henderson, ISO-NE director of regional planning and coordination, presented the results of the revised study to the Planning Advisory Committee on April 19.

The Regional Greenhouse Gas Initiative emissions cap — 91 million short tons in 2014 — is set to drop by 2.5% annually through 2020. Some activists have called on RGGI to double the cuts to 5% per year. Most of the six scenarios studied failed to meet those targets.

Dan Pierpont, manager of external affairs for CPV Towantic, asked about the “pricing effects of RGGI goal-busting performance,” while an unidentified woman participant on the phone said she wanted “RGGI-threatening scenarios clearly delineated in the executive summary for state policymakers.”

New Names for Numbered Scenarios

In place of the six numbered scenarios in the earlier draft study, Henderson said, “we’ve given nicknames to the scenarios so they’ll be intuitively obvious.” The new names are:

1. RPS + Gas: Physically meet renewable portfolio standards and replace generator retirements with natural gas (combined cycle units). It fails to meet the RGGI targets regardless of whether transmission constraints are modeled or not.
2. ISO Queue: Physically meet RPS and replace generator retirements with new renewable/clean energy. It meets the 5% RGGI reduction only in the transmission-unconstrained model and then only using the $64/ton carbon adder.
3. Renewables Plus: Physically meet RPS; add renewable/clean energy, energy efficiency, solar PV, plug-in electric vehicles and storage; and retire old generating units. It meets the RGGI targets under all sensitivities.
4. No Retirements (beyond Forward Capacity Auction 10): Meet RPS with resources under development and use RPS alternative compliance payments (ACPs) for shortfalls; add natural gas units. It fails to meet the RGGI targets under all sensitivities. It shows the highest LMPs assuming a $64/ton carbon price, averaging $69.70/MWh including transmission constraints.
5. Gas + ACPs: Meet RPS with resources under development and use ACP, and replace retirements with natural gas. It does not meet the RGGI targets under any sensitivity. It shows the highest LMPs under a $24/ton sensitivity, at $52.63 (transmission constrained).
6. RPS + Geodiverse Renewables: Scenario 2 with a more geographically balanced mix of on/offshore wind and solar PV. It meets the RGGI targets under the $64/ton sensitivity but fails under the $24/ton transmission-constrained model. It had the lowest LMPs of all six scenarios under all sensitivities, averaging $34.12/MWh ($24/ton) and $44.21/MWh ($64/ton) with transmission constraints modeled.

“Clearly, scenarios with the heavier renewable elements, scenarios 3, 6 and 2, show the lowest CO₂ emissions,” Henderson said. “As far as load-serving entities go, there is no change in the scenario order: The least expensive remains least, and the most expensive remains most.”

Scenario 2 shows the biggest decrease in LMPs when transmission constraints are relieved, a difference of almost $22/MWh assuming $64/ton carbon.

LMPs for scenarios 4 and 5 show virtually no change with the transmission constraints modeled because they have little congestion, Henderson said.

25-MW Threshold

Henderson noted that the study applies carbon allowance prices to all generating units in New England — including those below the 25-MW threshold employed by RGGI.

Ignoring the carbon prices for smaller units could actually increase emissions, Henderson said, because high emitting small units, such as biomass, would be dispatched more often.

“The new methodology is important, for when you raise carbon prices — if you do nothing to affect the resource dispatch order — you have no effect on emissions,” Henderson said. “As the resource mix changes and you end up with a greater amount of zero-emission resources, overall emissions decrease.”

The completed study is “on track” for publication in the second quarter, and a natural gas analysis will be announced at the May or June PAC, he said.

Study of Other Options Requested

David Ismay, senior attorney for the Conservation Law Foundation, gave a presentation asking the RTO to develop and price at least two new scenarios for generation and transmission that could reduce emissions to or below the levels of Scenario 3 at a lower cost.

“By developing a range of least-cost options for such public policy-compliant futures, the result of a Least-Cost, Emissions-Compliant System Topologies Study could be used to test the ability of market reforms to deliver the desired results of the market-policy integration that is the goal of both the on-going [New England Power Pool] Integrating Markets and Public Policy (IMAPP) effort as well as FERC’s recently opened Docket No. AD17-11,” Ismay said in a letter to Henderson.

Henderson replied that the RTO “requires specificity in any suggested economic study and will not invent a new system.”

Doug Hurley of Synapse Energy Economics offered to help Ismay and the CLF develop the right metrics for their request. Other participants spoke up to support Ismay’s use of the PAC forum to address his and the foundation’s concerns.