ISO-NE: Renewables are driving up capacity market prices

Dive Brief:

Increased dispatch of renewable generation in electricity markets is driving up prices in capacity markets, according to an analysis by ISO New England, which concluded the shift in revenues would impact energy-market dependent resources.
The grid operator said the region has small "but growing" amounts of wind and solar, which are increasing as federal and state policies look to cut carbon emissions.
At the end of last year, the region had 1,700 MW of solar and wind combined, the ISO said.

Dive Insight:

The rise of renewables in New England is keeping prices down in electricity markets, but at the same time driving up costs in the capacity market. According to the ISO, traditional generation sources are forced to price their capacity higher to offset a loss of revenue in the electricity markets because renewables -- sans fuel costs -- are dispatched first.

"Additional renewables are expected to decrease wholesale electric energy prices, which will result in increased capacity prices to ensure resource adequacy," the ISO said in a discussion paper. "The shift in revenues from the energy to the capacity market will also affect the resource mix, putting additional financial pressure on energy market dependent resources."

By the end of last year, the New England had 800 MW of nameplate wind capacity, which generated about 1% of the region's electricity. It also had another 900 MW of solar PV. But that mix is expected to rise quickly. The region has good wind potential and could generate about a quarter of its electricity needs under high wind penetration scenarios that include up to 12,000 MW of wind generation, according to the grid operator. The ISO is also anticipating 2,400 MW of solar generation to come online by 2024.

As wind and solar generation become more widespread in the region, "the price-reducing effects of renewables on electric energy prices will increase," according to the report. "This will in turn increase the financial pressure on energy-market dependent resources, often baseload resources such as nuclear and coal."