On April 14, 2017, MISO released the results of its fifth annual capacity auction. This auction covers the 2017-18 planning year. The auction is to ensure that there is sufficient generation capacity available to meet peak energy demand in the area. This focuses on demand in MISO’s footprint for June 2017 through May 2018. This year’s capacity auction cleared at a single price of $1.50/MW-Day for all of MISO.
An annual auction is a key component of MISO's resource adequacy process. This process also allows participants to self-supply capacity in order to meet their requirement. The auction sets the price that will be paid to power plant owners. These owners have agreed to have their generators available when called upon at times of peak demand. The auction also determines how much load is required for the reliability that is provided by capacity resources.
The auction results show that there are ample capacity resources available to meet expected demand. The auction procured:
- 121,807 MW of traditional generation resources
- 3,456 MW of behind-the-meter generation
- 6,014 MW of demand response resources
- 3,378 MW of imported generation
- 98 MW of energy efficiency resources.
In MISO’s press release announcing the results, Richard Doying, MISO’s Executive Vice President of Operations, notes that this year’s auction results “reflect a net regional increase in supply compared to last year’s results.” This increase compared to last year is despite the on-going evolution in MISO’s generation mix.
According to a report on the MISO Matters website, MISO’s generation portfolio has shifted. It is shifting away from coal-fired generation in favor of greater natural gas and renewable resources. In 2005, MISO’s portfolio consisted of 76% coal-fired generation, 7% natural gas and a very small amount of renewables. By 2016, coal had fallen to 46% of the supply stack. In contrast, natural gas grew to 27% and wind climbed to 8% of MISO’s installed generation.
Examining the Results
To ensure resource adequacy, MISO’s footprint is split into ten Local Resource Zones. These zones account for regional specific supply and demand conditions. All loads in MISO pay the auction clearing capacity rate for the zone where it is located. In this year’s auction, all resource zones cleared at the same price of $1.50/MW-Day.
The capacity results in this year’s auction cleared at a significantly lower level than last year. This is for regions in MISO with competitive retail markets. In Ameren (Zone 4) and Michigan (Zone 7), prices fell from $72/MW-Day. For a retail customer with a 60% load factor, this auction will result in a $4.90/MWh decrease in capacity costs. This is for the planning year that will begin June 1, 2017.
What Factors Impacted this Year’s Outcome?
According to MISO, the lower clearing price is reflecting both an increased supply of resources and a lower demand forecast. Other factors that are contributing to lower clearing prices increased demand response, energy efficiency and renewable resources. Another factor is a lack of constraints to bind resources to a specific location in this year’s auction. This allows for capacity to be delivered across all zones in MISO. This has resulted in a uniform price for the entire MISO footprint.
What’s Next for the MISO Capacity Market?
In February 2017, the Federal Energy Regulatory Commission (FERC) rejected a MISO’s proposal. This proposal was to adopt a three-year forward capacity auction for competitive retail markets within ISO. As a result, retail customers with Ameren (Illinois) will continue to be subject to MISO capacity auction rates. However, recent legislation adopted in Michigan requires retail power suppliers to procure capacity four years into the future, or pay an administratively set capacity charge. Consequently, MISO capacity auction results will be less relevant to customers taking retail supply in Michigan after May 2018.
Why Capacity Costs Matter to Electric Customers
Historically, MISO capacity costs have represented a very small portion of the total supply bill. However, the recent increase in costs has had a large impact on many customers’ energy budgets. In some cases, the increase in capacity costs may have offset the recent declines in electric commodity costs.
The short planning period between the capacity auction and the start of the planning year increases uncertainty for both generators and energy buyers. Wide swings in capacity costs have also made it very difficult for energy buyers to accurately budget their energy spend.
Constellation offers a variety of solutions to help customers manage capacity costs and energy use. This includes
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