2. Do Capacity Markets
Send a New-build Signal?
• What are capacity markets and why were they
created?
• To ensure reliability by providing the “missing money”
• The “missing money” problem
• In markets with capped energy prices and mandated adequacy
requirements, returns from energy and ancillary services will not
provide sufficient compensation to support the cost of new
generation. – Dr. Roy Shanker
2
3. Do Capacity Markets
Send a New-build Signal?
There are two types of electricity:
• Energy – keeps the lights on
• Capacity – makes sure they stay on
3
4. Do Capacity Markets
Send a New-build Signal?
• How do you pay for something that is not used, i.e., capacity?
• Assign a value to capacity via a competitive auction
• There are four organized capacity auctions:
– ISO-NE
– NY ISO
– PJM Interconnection
– Midcontinent ISO
4
6. Do Capacity Markets
Send a New-build Signal?
6
• Peak Load (MW – 7/2011) 163,848
• Capacity (MW) 185,600
• Energy (GW - 2012) 832,331
• Members 800+
• Generation Sources 1,365
• Millions - people served 61
• Area Served (Sq Miles) 214,000
• States served 13 + DC
• Transmission Lines (Miles) 62,000+
7. Do Capacity Markets
Send a New-build Signal?
7
• Peak (7/23/12) 98,576 MW
• Capacity 131,522 MW
• Annual billing 526 TWh
• 11 states, one Canadian province
8. Do Capacity Markets
Send a New-build Signal?
8
• Peak demand (7/19/13) 33,956 MW
• Capacity 37,925 MW
• Transmission 11,005 miles
• Total power usage (2012) 162,842 GWh
• Peak demand (8/2/06) 28,130 MW
• Capacity 32,000 MW
• Generators 350
• Customers served 6.5 million
• RTO population 14 million
• Interconnections to N.Y., Canada 13
• High voltage transmission (miles) 8,000 miles
9. Do Capacity Markets
Send a New-build Signal?
• Distinctive features of capacity markets:
– Demand curves
– CONE (cost of new entry)
– Mitigation
9
10. Do Capacity Markets
Send a New-build Signal?
Demand curves: vertical vs. sloped
Demand Curves for PJM, NYISO, and ISO-NE (Source: Brattle Group) 10
11. Do Capacity Markets
Send a New-build Signal?
• CONE
– The levelized capital costs and annual
fixed O&M costs for a hypothetical gas-fired
combustion turbine or combined-cycle
unit in the delivery year for that
capacity market.
11
12. Do Capacity Markets
Send a New-build Signal?
• Mitigation
– Supply side:
pivotal supplier test (PJM, NYISO)
de-list bids (ISO-NE)
– Demand side:
MOPR (minimum offer price rule)
(& exemptions to MOPR)
12
13. Do Capacity Markets
Send a New-build Signal?
Capacity market comparisons
`
PJM NYISO ISO-NE MISO
Auction name base residual market (BRA) installed capacity market
(ICAP)
forward capacity
auction (FCA)
planning
resource auction
(PRA)
Type uniform price uniform price descending clock uniform price
Forward commitment period three years six months three years two months
Delivery period one year one month or six months one year one year
Unit price MW-day kW-month kW-month MW-day
Replacement auction three annually no annual & monthly no
Demand curve
downward slope downward slope vertical vertical
Generation must offer? yes only pivotal suppliers only new resources only previously
cleared resources
14. Do Capacity Markets
Send a New-build Signal?
14
Capacity Clearing Prices in Each RTO and Select Sub-Regions for
Commitment Periods between 2006 – 2017
22. Do Capacity Markets
Send a New-build Signal?
New generation in PJM’s 20116-17 BRA
New
Generation
Generation
Uprates
Imports
Demand
Response
Energy
Efficiency
2016/2017 4,282 1,181 7,483 12,408 1,117
2015/2016 4,899 447 3,935 14,833 923
2014/2015 416 341 3,017 14,118 822
• Panda-Moxie Liberty 829 MW gas plant in Bradford County, Pennsylvania
22
• Based on $2/MMBtu nat. gas in Marcellus vs. $4/MMBtu at Henry Hub
23. Do Capacity Markets
Send a New-build Signal?
23
Capacity imports into PJM, 2016-17 BRA
2015-16 2016-17
west of PJM 3,621 7,070
other 314 413
total 3,953 7,483
• Only 4,788 MW (64%) of the cleared imports
had confirmed firm transmission service
• MISO auction: $1.05/MW-day
• PJM auction: $59.37/MW-day
• Ameren increased exports to PJM 100 to 900 MW
• Dynegy is looking to export up to 3 GW into PJM
24. Do Capacity Markets
Send a New-build Signal?
24
Retirements
• FirstEnergy to close another 2,080 MW of coal plants in
PJM
• A second wave of retirements?
• NRG Energy to close Norwalk Harbor plant in Connecticut
• Another 6 GW of plants at risk of retirement?
26. Do Capacity Markets
Send a New-build Signal?
26
Issues: Demand response
• PJM is looking at changes to its demand curve
27. Do Capacity Markets
Send a New-build Signal?
27
Issues: Gas-electric integration
• ISO-NE – gas used for heating; lack of natural gas pipelines
• MISO – looming coal retirements
Issues: Capacity imports
• Ameren increased 100 MW to 900 ME
• Dynegy looking to export up to 3,000 MW
• Will PJM limit imports?
Issues: MOPR
• New Jersey – 2,000 MW LCAAP program
• Maryland – PSC solicitation for in-state generation
