The wholesale price of electricity in New England is exploding.
In recent months, nearly 10% of existing power plants in New England have announced plans to retire over the next three years.
The result: capacity deficits and rising wholesale prices.
“The region abruptly went from a capacity surplus and low prices in previous auctions to a capacity shortfall and relatively high prices,” said Gordon van Welie, the chief executive officer of the Independent System Operator for New England (ISO New England), which manages the region’s transmission grid and the wholesale electricity market,
The total cost of capacity for New England rose to $3.05 billion at this year’s FCM. To put the scale of this increase in perspective, the total cost of capacity for the previous seven auctions ranged between $1.06 billion in 2013 and $1.77 billion in 2009.
The major power plants planning to retire in New England in the next three years “include Brayton Point, a 1,535-MW power plant located in southeastern Massachusetts; Vermont Yankee, a 600-MW power plant located in southern Vermont; Salem Harbor, a 750-MW generator in northeastern Massachusetts; and Norwalk Harbor, a 350-MW power plant located in southwestern Connecticut,” according to an ISO New England,” according to ISO New England.
The FCM sets the price of capacity, one of the major components of wholesale power prices, for new and existing resources. It is held three years in advance to provide time for new resources, which include both traditional power generation or demand-side resources, to be developed.
Capacity payments provide economic incentives to attract investment in new and existing supply-side and demand-side capacity resources to ensure that sufficient capacity is available for reliable operation of the bulk power grid.
The first seven auctions ended with a significant surplus of regional capacity. By contrast, Monday’s FCM auction concluded with a deficit of 155 megawatts of capacity required for the 2017 and 2018 commitment period, according to ISO New England.
“The slim capacity margin and the resulting auction prices are a clear signal to the marketplace that the region needs more power generation and demand reduction capacity,” said van Welie.