ISO New England Updates
January 14, 2013
Regional system operator ISO New England (ISO-NE) is working on a series of wholesale market reforms that pertain to or impact wind power in New England. Topics include forward capacity market (FCM) re-design, negative energy market offers, real-time dispatch rules, day-ahead market timing, and compliance with Federal Energy Regulatory Commission (FERC) orders on Integration of Variable Energy Resources and Order 1000 on Transmission Planning and Cost Allocation. Each has an impact on current or future wind projects in New England's wholesale markets.
FCM Re-Design and the Renewable Energy Exemption
The New England Power Pool (NEPOOL) FCM Redesign Working Group worked all year to reach consensus on a framework for the re-design of the FCM following an almost complete lack of support for the proposed ISO-NE compliance filing at the Markets Committee in November 2011. In April 2011, FERC issued an order in the New England FCM re-design proceedings, Docket ER10-787, rejecting the two-tiered pricing proposal from ISO-NE in 2010. FERC instead called for ISO-NE to implement a form of buyer-side market power mitigation similar to those in place in PJM and the New York Independent System Operator (NYISO). Under a minimum price rule, policy-driven renewables, including wind generators, would be seen as "out-of-market" and prohibited from offering in the auctions below a price deemed "competitive" by ISO, a price expected to be above market clearing prices. Proposals to provide renewables with an exemption from this rule, allowing new renewable capacity to continue to have the option to offer in the auctions as price takers, have so far failed to garner sufficient support for adoption. Without such an exemption, it is unlikely that any new renewable resources (including those that cleared for the first time in FCA 6 or FCA 7) will clear in the forward capacity auctions and reap any capacity market revenues.
To date, the FCM Working Group has been unsuccessful at developing a consensus around alternative proposals to the one included in the FERC's order. As a result, ISO-NE will move forward with the compliance filing prepared in December 2011 that received a vote of only 2.45% in favor at the December 2011 Markets Committee meeting. ISO-NE is required to make its compliance filing by December 3, 2012. The revised package does not contain any exemptions from the minimum offer price rule for renewable energy resources.
Negative Energy Market Offers
ISO-NE began discussing a proposal to introduce the ability to place negatively priced energy offers into the wholesale energy markets in 2012. Negatively priced energy offers and bids are of particular interest to wind and other renewable energy generators. Due to production tax credits and renewable energy credit payments, wind projects may often wish to operate even when locational marginal prices are at or below zero. At the September Markets Committee, ISO-NE presented the proposal, rolled into a larger package of market design changes for fourth-quarter 2014 implementation that would increase scheduling flexibility. The tentative schedule for this major effort includes Markets Committee discussions through the second quarter 2013, when ISO-NE will present tariff language and request a vote.
Real-Time Dispatch Rules
ISO-NE has proposed making wind resources economically dispatchable. Currently wholesale wind generators can accept real-time energy market prices but cannot directly set these prices by submitting economic offers for use by the automated dispatch software. Under the current system, when ISO-NE needs to limit a wind plant's output, this is done manually and has no impact on the local price of energy, encouraging other generators to continue producing power.
ISO has proposed to update the dispatch software to issue a Do Not Exceed signal to participating wind plants. Ideally, this will allow the software to reduce the output of more costly generation rather than low-cost wind generation when transmission congestion occurs. ISO-NE initially intended to request a Markets Committee vote in July, but after a number of wind stakeholders requested additional time to better understand how this proposal would be implemented, ISO-NE agreed to defer the vote. Issues remaining that require better understanding from ISO-NE are how the dispatch software will set local prices in wind-rich areas and whether it might exacerbate transmission congestion.
Day-Ahead Market Timing
Due to reliability concerns related to the timing of the natural gas nomination schedule and the region's growing reliance on natural gas, ISO-NE is proposing to move the timing of the day-ahead market as well as the re-offer period for the real-time market significantly earlier. The earlier the prediction, the less accurate the wind forecasts, and this presents concerns for wind plants that may want to use the day-ahead market in the future as a tool to combat transmission congestion or that want to ensure that their self-schedules for the real-time market have the best chance of being accommodated. ISO-NE discussed their proposal for the fourth time at the September 11th NEPOOL Markets Committee meeting. ISO-NE had previously proposed moving the day-ahead market offer deadline 18 hours earlier. The most recent proposal of an offer deadline of only 3 hours reflects ISO's consideration of concerns expressed by market participants representing wind, demand response, and load. Even so, the majority of participants expressed a desire to leave the market timing where it currently is and to address the gas reliability issues through different mechanisms.
Compliance with FERC's Final Rule on Integrating Intermittent Generation
Following up on the November 2010 Notice of Proposed Rulemaking on Integration of Variable Energy Resources, the FERC issued its Final Rule to Integrate Variable Energy Resources, Order 764, on June 22 in Docket RM10-11-000. The impacts of this Final Rule on New England are minimal, but ISO-NE must make a compliance filing by September 11, 2013. Issues addressed in the Final Rule involve implementing 15-minute transmission scheduling (ISO-NE already uses 5-minute dispatch); wind forecasting (ISO-NE is already working on implementing a centralized wind forecasting system); and guidance on charges for generator regulation service (there has been no move yet within ISO-NE or NEPOOL to try to charge wind generators for any integration costs).
FERC Order 1000 Process
The current ISO-NE/Participating Transmission Owner proposal for Order 1000 compliance enables a load-pays approach when transmission upgrades are done to meet public policy goals, such as to connect to wind resources for purposes of meeting state mandates. Under this proposal, the New England States Committee on Electricity (NESCOE) on behalf of the region's states would be able to propose public policy transmission upgrades whose costs would be allocated to participating states in proportion to their load. Since states could elect to opt out of paying their share under this proposal, it is unclear whether much would change from the way economics-driven transmission upgrades might proceed under Attachment K of ISO-NE's Open Access Transmission Tariff.