Today’s wholesale capacity markets treat all capacity equally with one overall objective, to acquire enough electric generating capacity to meet reliability requirements at the lowest consumer cost. ISO New England’s CEO, Gordon van Welie clearly stated the problem with today’s market systems in a recent Commonwealth Magazine article, “The existing market has one objective, which is to provide reliable electricity at the least possible cost, that’s all this market does. It doesn't incorporate an environmental objective”. Several states, ie. New York, Massachusetts, and others, have initiated environmental programs to reduce green house gases and achieve renewable energy targets. However, current capacity markets are not designed to properly value capacity based on other characteristics such as environmental impacts on CO2, SOx, NOx, fly ash, etc.
A new approach to capacity acquisition is needed that properly values and prioritizes capacity that satisfies each individual State’s energy targets, as the first priority. A proposal for an “Always on Capacity Exchange” (AOCE pronounced ACE) has been submitted to industry as a means to properly value capacity resources based on their ability to meet each state’s environmental and renewable energy targets and other characteristics important to system operators, such as rapid up and down ramping capability, using a market based approach. The proposal calls for the creation of an industry standard, capacity exchange trading platform that enables capacity sellers and buyers to transact using a bid/ask approach, across control areas, within a nationwide capacity exchange market.
Owners of Solar and Wind resources would offer their capacity into the exchange at an asking price based on supply/demand, on hours when they are capable of producing energy. Just as in today’s capacity markets, ISO’s would be required to acquire the proper amount of capacity, however instead of acquiring capacity simply based on lowest cost, a precedence order would be applied. ISO’s would be required to purchase capacity using the following priorities: 1. Satisfy individual State energy targets, for example a State target of 20% renewables would require an ISO to satisfy 20% of each day’s forecasted energy consumption in that State with renewable resource capacity; 2. Satisfy reliability goals by acquiring enough capacity to meet control area forecasted peak demand and reserves on an hourly basis, this will eliminate over buying excess capacity, which occurs today; 3. Based on economic goals, i.e. lowest consumer cost. Capacity could be acquired from one location and delivered to another location, crossing control area boundaries, provided appropriate provisions are made, i.e. e-tags secured for the entire route. This would enable excess capacity in New England to be available in PJM’s control area, provided enough transmission capacity is available and can be secured.
The proposed ACE should be designed and developed within a forum that supports an industry consensus approach engaging all stakeholders (i.e. capacity suppliers/buyers), regulators, policy makers and consumers, with nationwide scope and formal standing as an ANSI standards development organization, with a successful track record for developing wholesale electric industry standards across North America.