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Achieving New England State Energy Goals within an AOCE NEPOOL Wholesale Capacity Market Design

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The Always on Capacity Exchange (AOCE) wholesale capacity market reform proposal is now under consideration as a pathway forward within NEPOOL, under the “Other Approaches” category. The AOCE presentation linked on the NEPOOL site contains a graphical overview of the process described by this article on slides 17-23. Several questions have been raised regarding how AOCE helps States achieve their Energy Goals and prevent charging consumers within States that have no such energy goals. This article describes how an AOCE based capacity market solution would work in New England, where each of the New England States define differing energy goals.

 AOCE is modeled after the REBA Marketplace where buyers and sellers come together to transact in long term contracts for capacity/energy. A contract is formed when generator offers and buyer bids align forming a “capacity commitment”, which is then approved by the ISO resulting in an approved capacity commitment (ACC). Bids and offers contain specific details about the type of generator supplying the capacity and energy, e.g. wind, solar, nuclear, natural gas, etc, along with the capacity MW being supplied, agreed to pricing and duration of the contract, which can span multiple years. Anyone with sufficient financial assurance is eligible to be a buyer in AOCE; generating resource owners must first have their generating resources (both existing and new) approved by the ISO as “qualified to provide specific grid services” to participate in AOCE.

At a defined point in the ISO’s “resource adequacy” and system planning processes the ISO needs to initiate a process to secure capacity for reliability purposes. Market rules define the details of this process. The ISO performs this process by first identifying the specific resources/capacity that need to be acquired in order to achieve State energy goals, as a first priority. Each State MUST independently supply the ISO with a set of parameters that will be used to select which ACC’s/generators qualify to meet the State’s energy goals, these parameters include:

  • Start/End dates indicating a commitment period (perhaps a one year duration) for which generators will be contracted to supply capacity/energy contributing toward State energy goals
  • Amount of Capacity to be secured for the commitment period to meet State energy goals. For example, given a MA State goal of 100% carbon free by 2050, the amount of Capacity that is needed to meet State Energy goals for the 2021 commitment period would be 2,000 MW (example only), based on a linear function to achieve 2050 goals.
  • Max price per MW/day; used to limit the amount of capacity payments that State consumers will pay to achieve State Goals
  • A flag called “Allow_External_Generators”, indicating if out of State resources may be acquired to meet State Energy goals. A “Yes” value indicates that a State will accept out of State generation resources to count toward their own defined State Energy Goals. A “No” value indicates that out of State resources are not allowed to satisfy State Energy goals. A good example for why this parameter is needed may be found here: HQ Hydro Power Contract
  • A flag called “Allow_NE_Generators”, indicating if a generator located within one of the New England States can be acquired to meet the State Energy goals of a given NE State. A “Yes” value indicates that a State will accept capacity/energy from a generator in another NE State to be used to meet State energy goals. A “No” value would disallow generators in other NE States from contributing toward State energy goals. For example, the State of MA may accept the “green energy” from generators located in other NE States, such as the Seabrook Nuclear facility, located along the Massachusetts border.  
  • When both flags are set to “No” this indicates that no out of State resources may be acquired/contribute to meeting a States defined Energy goals.
  • A specific definition of the type of generating resources that qualify toward meeting State Energy goals. i.e. Wind, Solar, Nuclear, etc. This information is used by the ISO when selecting resources from the available set of ACC’s to meet specific State Energy Goals

At some point the ISO initiates a process to secure capacity for a defined reliability commitment period (RCP), by issuing Capacity Supply Obligations (CSO) to generating resource owners. This RCP is used to select generating resources from the set of ACC’s with approved capacity commitment with dates that fall into the RCP date range, that have not been issued a capacity supply obligation.

  • A capacity Supply Obligation (CSO) is issued by the ISO to those ACC generators that fall within the State defined parameters (see above) and the ISO’s reliability commitment period (RCP)
  • Each State clears independently, in order to prevent price distortions.
  • States that do not allow external generators to contribute toward State Energy Goals clear first
  • States that ““Allow_NE_Generators” to contribute toward State Energy goals clear second
  • States that “Allow_External_Generators” from anywhere to contribute toward State Energy goals clear last
  • The cost of acquiring generating resource capacity in order to meet State Energy goals are allocated to the consumers of that State. Consumers in other States are not charged for capacity that is acquired to satisfy another States program.
  • The clearing process used by the ISO is similar to the DA Energy Market, where a single uniform clearing price sets the value of capacity acquired during the clearing process. All generators with established ACC’s that are “cleared” by the ISO will receive this uniform clearing price in exchange for their CSO.  Buyers in the ACC “contract” receive “capacity payments” commensurate with the uniform clearing price and amount of ACC capacity receiving a CSO.
  • Generators are expected to offer their capacity into AOCE at a price point which will ensure that there will be adequate revenues to guarantee their ability to commit to being available for the entire commitment period specified in the CSO.
  • After the ISO has issued CSO’s to address State Energy goals, a second clearing process is initiated to acquire the essential grid services that are needed in order to satisfy reliability needs for the region, factoring in the capacity MW’s that have already been acquired for State energy goals. Each “grid service” clears independently in order to prevent price distortions across grid services. The ISO determines both the quantity and type of service needed to satisfy reliability requirements, calculated by the ISO for the RCP.

There are many more details to be worked out within the overall process, but I hope this gives NEPOOL members, Green buyers, such as REBA members, and others a general understanding of how AOCE is used to help Green Buyers and States meet their energy goals within New England, as part of the process used to secure resources/grid services needed for reliability, within a wholesale capacity market solution, designed to ensure a reliable electric system for all New Englanders at a just and reasonable cost..

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Rao Konidena's picture
Rao Konidena on Nov 28, 2020

Hi Richard,

Thanks for well thought out proposal. My question is around the role of transmission, specifically how is the proposed approach accounting for import and export limitations between the generators located inside and outside the NE pool.

As I understand, the State PUC (I am assuming) is responsible for essentially capacity qualification. I think what the proposed approach is mimicking is - on a day-ahead basis, the state qualifies the capacity and in real-time, the ISO dispatches the capacity. Am I right?

Essentially, you are also thrusting a lot of operating parameters on the state PUC staffers. Because they will have to keep track of min capacity segments, ramp rates, must-run status, underperformance penalties - essentially, a feedback loop with the ISO after the unit performance.

Wouldn't all this lead to more room for human error? Also the cost of replicating unit commitment at multiple states versus at a single place ie the ISO.

I see the benefit is each NE state has more say in the capacity qualification process. 

An alternative that is working at MISO is, MISO allows IOUs in states with IRPs to point to the capacity that is approved in IRPs in the auction. MISO runs the auction with capacity import and export limits. If a zone runs against those transmission limitations, the price at the zone is the Cost of New Entry (CONE).

Richard Brooks's picture
Richard Brooks on Nov 28, 2020

Thanks for your insights and questions Rao, here is my respose:

With regard to "As I understand, the State PUC (I am assuming) is responsible for essentially capacity qualification"

  • This is not the case with AOCE: the ISO is responsible for qualifying a resoruce to provide a specific grid service, which also addresses any interconnection requirements in order to guarantee their ability to deliver energy - which addresses your concern about transmission requirements. A resource that is unable to deliver due to transmission constraints would not receive qualification approval from the ISO, until such time that the constraints are addressed.

With regard to "Essentially, you are also thrusting a lot of operating parameters on the state PUC staffers. Because they will have to keep track of min capacity segments, ramp rates, must-run status, underperformance penalties - essentially, a feedback loop with the ISO after the unit performance."

  • The items you cite are largely related to reliability, which is the provenance of the ISO. States only need to supply the 5 parameters listed in the article to the ISO to determine which resourcesatisfy a States energy goals and will receive a Capacity Supply Obligation (CSO) and the buyer  in the ACC transaction receives capacity payments.

With regard to "Wouldn't all this lead to more room for human error? Also the cost of replicating unit commitment at multiple states versus at a single place ie the ISO."

  • SCUC and SCED are DA and RT Energy market functions and do not play any part in AOCE.

With regard to "I see the benefit is each NE state has more say in the capacity qualification process. "

  • States continue to have their FPA given authority over generation - no policy changes are needed for AOCE to work.the ISO continue to be responsible for qualification, using inputs provided by the States and other reliability factors.

With regard to "If a zone runs against those transmission limitations, the price at the zone is the Cost of New Entry (CONE)."

  • A uniform clearing price is determined using an optimization function that must adhere to all constraints established by the ISO for the clearing process, for each grid service required by the ISO to satisfy reliability within a given area (i.e Load Zone, State, Region, etc.)

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