Analysis: New England capacity prices rise sharply

OREANDA-NEWS. February 05, 2015. New England's 2018-19 forward capacity auction concluded today with a 33pc increase in revenue for generating resources, marking the second consecutive sharp rise in annual capacity prices.

The auction results are better news for incumbent generators than for power plant developers. Only 1,427MW of new generating capacity cleared in the auction and will be expected to be on line by mid-2018. Meanwhile, 3,400MW of coal and oil-fired capacity will have retired by 2018, or 10pc of current capacity.

The auction concluded with the grid operator acquiring 34,695MW of capacity across the region, which exceeded the 34,189MW target. Capacity procured in the auction, which covers the June 2018-May 2019 period, includes 30,442MW of generation, 1,449MW of imports and 2,803MW of demand response. The auction added 367MW of new demand response.

The cost of capacity obligation for 2018-19 totals \\$4bn, up by a third from the 2017-18 auction. The 2018-19 auction cleared 24,447MW of capacity at \\$9.55/kW-month outside of southeast Massachusetts and Rhode Island, where 353MW will be paid \\$17.73/kW-month and 6,888MW will receive \\$11.08/kW-month.

The grid operator procured 238MW less capacity than required for southeast Massachusetts and Rhode Island, and the shortfall triggered administrative prices higher than in the rest of the region.

The grid operator expressed satisfaction with the auction results. "The capacity market is working as designed. The price signals from last year's auction helped spur investment in new resources," Independent System Operator chief executive Gordon van Welie said.

Rising capacity prices will trouble consumer advocates and state officials, who already grumble about having to pay the highest wholesale power prices in North America. But even at those prices capacity additions still trail retirement levels, which will add pressure on the regional energy market.