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Capacity markets overview

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Overview of electric power industry capacity markets.

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Capacity markets overview

  1. 1. Do Capacity Markets Send a Signal for New-build Generation? Peter Maloney, Senior Writer, Platts Power Group Platts Commodity Week, Houston October 9, 2013 © 2013 Platts, McGraw Hill Financial. All rights reserved.
  2. 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. 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. 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
  5. 5. Do Capacity Markets Send a New-build Signal? 5
  6. 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. 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. 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. 9. Do Capacity Markets Send a New-build Signal? • Distinctive features of capacity markets: – Demand curves – CONE (cost of new entry) – Mitigation 9
  10. 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. 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. 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. 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. 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
  15. 15. Do Capacity Markets Send a New-build Signal? 15 NERC 2013 Summer Reliability Report NYISO MISO PJM ISO-NE projected demand (MW) 33,279 91,532 145,029 26,690 anticipated resources (MW) 39,592 108,742 187,531 32,458 anticipated reserve (%) 18.8 18.8 29.3 21.6 NERC reference reserve (%) 17 14.2 15.9 15
  16. 16. Do Capacity Markets Send a New-build Signal? 16 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 2007 2008 2009 2010 2011 2012 2013 Installed Capacity Forecast Peak Reserve Margin PJM Interconnection reliability metrics
  17. 17. Do Capacity Markets Send a New-build Signal? 17 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 New York ISO reliability metrics 41,898 42,159 43,686 38,970 37,782 38,622 38,936 33,452 33,865 32,439 33,279 18,665 18,645 18,538 18,705 2010 2011 2012 2013 41,452 Megawatts Available Resources Required Resources Peak Load Average Demand
  18. 18. Do Capacity Markets Send a New-build Signal? 18 PJM and ISO-NE: new generation additions (MW) 6,000 5,000 4,000 3,000 2,000 1,000 0 ISO-NE PJM
  19. 19. Do Capacity Markets Send a New-build Signal? 19 Capacity Additions in PJM auctions, 2014-15 (Source: Brattle Group)
  20. 20. Do Capacity Markets Send a New-build Signal? 20 • PJM’s 2016-17 Base Residual Auction drove investment in: – New generation – Imports – Retirements – Demand Response
  21. 21. Do Capacity Markets Send a New-build Signal? 21 200 180 160 140 120 100 80 60 40 20 0 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 MW-day PJM price signals
  22. 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. 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. 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?
  25. 25. Do Capacity Markets Send a New-build Signal? 25 • Issues facing capacity markets: – Demand Response – Gas-electric integration – Imports – Mitigation (MOPR)
  26. 26. Do Capacity Markets Send a New-build Signal? 26 Issues: Demand response • PJM is looking at changes to its demand curve
  27. 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
  28. 28. Do Capacity Markets Send a New-build Signal? 28 ERCOT’s dwindling reserve margins Panda in Texas Temple: 1,200 MW Sherman: 1,200 MW ERCOT’s footprint 2014 13.80% 2015 11.60% 2016 10.40% 2017 10.50% 2018 9.40% 2019 7.40% 2020 6.50% 2021 6.00% 2022 5.20% 2023 4.50%
  29. 29. Questions? © 2013 Platts, McGraw Hill Financial. All rights reserved.

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