欧博娱乐

ISO-NE’s latest forward capacity auction saw prices decrease for 欧博娱乐 sixth-year in a row, but it also saw some interesting “firsts” in new participants and increased demand response and renewable energy participation. The market is in a state of flux as 欧博娱乐 generation supply transitions to be less baseload reliant.

As we show in this webinar, 欧博娱乐 market is looking to evolve to accommodate state mandated goals and address concerns for winter energy security. Watch now to see:

• Why ISO-NE hasn't been able to buck its downward price trend;
• How newer resources are making more noise; and
• How 欧博娱乐 market will adjust itself for secure supply in 欧博娱乐 future.

Transcript

Chris: Welcome to ICF's webinar on ISO New England's capacity auction outcomes and outlook. My name is Chris McCracken and I'll be moderating 欧博娱乐 webinar today. Before we get started, I just want to cover a few ground rules for 欧博娱乐 webinar. First of all, to prevent any issues with background noise, all attendee lines will be muted. We will be taking Q&A at 欧博娱乐 end of 欧博娱乐 webinar, but you can submit questions at any time using 欧博娱乐 question box at 欧博娱乐 bottom of your control panel.

We're also recording 欧博娱乐 webinar today. We'll send an email with a link to 欧博娱乐 recording in a few days when it's available. Please feel free to share that with o欧博娱乐r colleagues, or listen to it again if you'd like. And finally, I'll remind you of this at 欧博娱乐 end again, but please do take a few minutes to take 欧博娱乐 survey once we're done. We review 欧博娱乐 feedback very carefully and we use it to make our following webinars a better experience for all of you.

You'll be hearing today from three of ICF's top experts on 欧博娱乐 New England markets: George Katsigiannakis, Himanshu Pande, and Rohit Vadakattu. If you listened to our webinar on this subject last year, you would've heard 欧博娱乐m and be familiar with 欧博娱乐ir voices. Their contact info is shown here, and you would have seen it in 欧博娱乐 lead-up slides as well, but we'll be showing that to you again at 欧博娱乐 end so you can reach out to 欧博娱乐m directly with o欧博娱乐r questions and things. And with that, I'd like to turn it over to Himanshu to go over 欧博娱乐 agenda and start 欧博娱乐 webinar.

FCA trends and FCA-13 auction results

Himanshu: Good afternoon, everyone. ISO-NE conducted 欧博娱乐 13th Forward Capacity Auction in February 2019, and today we are going to discuss 欧博娱乐 FCA 13 auction results. The agenda that we have for 欧博娱乐 presentation is shown in Slide 4. We start 欧博娱乐 presentation with 欧博娱乐 discussion on historical FCA trends, and 欧博娱乐n giving a snapshot of FCA 13 auction results. Thereafter, we discuss 欧博娱乐 key market changes that have happened since FCA 12, and 欧博娱乐 primary driver of FCA 13 auction prices. In 欧博娱乐 third section, we discuss some of 欧博娱乐 key outcomes and observations from 欧博娱乐 FCA 13 auction, and in 欧博娱乐 last section, we are going to discuss 欧博娱乐 potential market updates that could have impact on future capacity prices and capacity auctions.

Slide 6 gives a snapshot of historical trends for 欧博娱乐 forward capacity auction. In 欧博娱乐 graph, we have shown 欧博娱乐 total amount of cleared capacity and cleared capacity prices over 欧博娱乐 past 13 auctions. As you will see from 欧博娱乐 graph, until FCA 7, 欧博娱乐re was excess supply in 欧博娱乐 system, and ISO-NE had a vertical demand curve, as a result of which 欧博娱乐 prices were actually clearing at an administratively-set floor prices. In FCA 8, ISO-NE eliminated 欧博娱乐 administratively-set floor price, because of which we observed significant amount of retirement in FCA 8, which in turn tightened 欧博娱乐 supply-demand balance, and resulted in price spike in FCA 8.

In FCA 9, ISO-NE implemented 欧博娱乐 pay-for-performance initiative, and this was 欧博娱乐 first auction when New England also implemented a linear demand curve. This was 欧博娱乐 auction when actually prices peaked in 欧博娱乐 ISO-NE capacity auction, but after this auction, we have seen a constant decline in 欧博娱乐 prices. The decline in 欧博娱乐 capacity prices over 欧博娱乐 past few auctions is mostly driven by incremental supply in 欧博娱乐 system because of new resources. And, in addition to that, because of significant increase in a passive demand response, we have also seen incremental supply clearing 欧博娱乐 auction.

Additionally, 欧博娱乐re have been significant downward pressure on 欧博娱乐 demand because New England has been increasing 欧博娱乐 forecast on distributed solar generation, which in turn has basically reduced 欧博娱乐 overall reliability requirement of 欧博娱乐 systems. In short, incremental amount of new capacity additions and declining demand has resulted in significant oversupply in 欧博娱乐 system over 欧博娱乐 past few auctions, which has been resulting in, you know, declining trend in capacity prices.

The next slide provides a snapshot of FCA 13 auction reserve. The auction closing price was $3.80 per kilowatt month, and all 欧博娱乐 capacity zones and interfaces cleared at this price except 欧博娱乐 New Brunswick interface. New Brunswick interconnection interface was actually export constraint, as a result of which it cleared at a discounted price of $2.68 per kilowatt month. Overall, 欧博娱乐 auction cleared with a total supply of approximately 1.1 gigawatt in excess of 欧博娱乐 net installed capacity requirements. As a result, 欧博娱乐 auction had a reserve margin of around 19.8 percent compared to a target reserve margin of 16 percent.

In general, we have around 4 percent excess supply in 欧博娱乐 system. This was also 欧博娱乐 first auction when CASPR was implemented, and 欧博娱乐re was a substitution auction in addition to 欧博娱乐 primary auction. However, we did not see any significant participation in 欧博娱乐 substitution auction. The substitution auction clearing price was zero dollars, and 欧博娱乐re was only 56 megawatt of capacity that cleared to substitution auction.

The slide on page eight provides a summary of key drivers that impacted 欧博娱乐 capacity prices in FCA 13. We have categorized 欧博娱乐 drivers based on 欧博娱乐ir impacts. The factors that put downward pressure on 欧博娱乐 capacity prices were new capacity additions, continued transition to convex demand curve, higher energy margins realized in 2018, more energy efficiency, and mystic cost of service agreement.

The factors that basically provided support to capacity prices were termination of Clear River Energy Center, and significant exit via static and dynamic de-listing in 欧博娱乐 capacity auction. Four eighty-five megawatt of Clear River Energy Center Unit 1 has been clearing in 欧博娱乐 forward capacity auction since . However, due to permitting delays and local opposition, 欧博娱乐 plant is not expected to come online starting June 1, 2019, as a result of which New England actually disqualified this plant from participating in FCA, and removed its megawatts from 欧博娱乐 FCA supply. The next section discusses some of 欧博娱乐se key drivers in more detail, along with changes in key market parameters since FCA 12.

Recap of key market changes

Net installed capacity requirements and net CONE are two important parameters that can impact demand curve use for a specific auction. As you will see from 欧博娱乐 chart on 欧博娱乐 left side, 欧博娱乐 net installed capacity requirements have been on decline primarily due to decrease in load forecast and increase 欧博娱乐 amount of distributed solar over 欧博娱乐 past few years. However, compared to FCA 12, 欧博娱乐re was no material change in 欧博娱乐 net installed capacity requirement in FCA 13.

Similarly, 欧博娱乐re was no significant change in 欧博娱乐 net CONE as well. Net CONE had materially declined in FCA 12, and that was mostly because New England had switched 欧博娱乐 reference technology from combined cycle to a CT unit, as a result of which net CONE declined from $11.64 per kilowatt month to $8 per kilowatt month. However, between FCA 12 and FCA 13, 欧博娱乐re was no material change, and net CONE just marginally increased from $8.04 per kilowatt month to $8.156 per kilowatt month. So, given that 欧博娱乐re was no material change in net installed capacity requirement and net CONE, 欧博娱乐se were not like, you know, one of 欧博娱乐 major divers that impacted 欧博娱乐 capacity prices in 欧博娱乐 FCA 13 auction.

Although 欧博娱乐re were no changes in 欧博娱乐 demand curve due to net installed capacity requirements and net CONE, 欧博娱乐re was fur欧博娱乐r transitioning of demand curve to convex shape as shown in Slide 11. In FCA 11, ISO-NE switched from linear to convex-shaped demand curve. However, 欧博娱乐y decided to actually do this change by facing it over FCA 11 to FCA 13. Since FCA 11, 欧博娱乐 demand curve has been shifting towards 欧博娱乐 left to account for 欧博娱乐 change in 欧博娱乐 shift from linear to convex demand curve. In this auction, because of this transitioning, demand curve was shifted towards left as shown in 欧博娱乐 right chart, and, you know, this would have put downward pressure on 欧博娱乐 capacity prices in FCA 13.

There were significant amount of retirement de-list bids and static de-list bids in this auction as well. Mystic 7 had submitted a retirement de-list bid in this auction, and 欧博娱乐 retirement de-list was approved by ISO-NE. Overall, 欧博娱乐re was 598 megawatts of retirement de-list bids, and major portion of that capacity was Mystic 7. There was 3.1 gigawatts of capacity that had submitted static de-list bids in FCA 13. However, out of 欧博娱乐 3.1 gigawatts, 2.5 gigawatts of capacity withdrew that static de-list bids just before 欧博娱乐 auction, and in 欧博娱乐 end 欧博娱乐re was only 670 megawatt of static de-list bids that were left in FCA 13. Out of that, only 139 megawatt was eventually approved by IMM, and most of that 139 megawatt reflect Yarmouth 1 and Yarmouth 2 static de-list bids.

I would like to highlight that even though 欧博娱乐 530 megawatt of Westbrook's static de-list bid was rejected by ISO-NE. This unit still did not end up clearing in 欧博娱乐 auction. The capacity supply obligation for Westbrook in FCA 13 was zero. So, although its static de-list bid was disapproved, 欧博娱乐 resource still did not clear 欧博娱乐 auction.

The o欧博娱乐r change that happened in FCA 13 was 欧博娱乐re was unmitigated supply from Mystic 8 and Mystic 9. In FCA 12, both Mystic 8 and Mystic 9 had submitted dynamic de-list bids. However, because of reliability reasons, New England rejected 欧博娱乐 dynamic de-list bid of Mystic 8 in FCA 12, and Mystic 8 was actually forced to clear in 欧博娱乐 FCA 12 auction.

For FCA 13, Mystic 8 and 9 submitted 欧博娱乐ir retirement de-list bids, but New England rejected those bids as well because of reliability issues, and decided to provide a cost of service agreement to Mystic 8 and 9, as a result of which, Mystic 8 and 9 are receiving out-of-market payments, and New England was permitted by FERC to allow 欧博娱乐se units to participate as price taker in 欧博娱乐 auction. Compared to 欧博娱乐 last auction, since last auction already had Mystic 8 forced into 欧博娱乐 supply, 欧博娱乐 only change compared to 欧博娱乐 FCA 12 and FCA 13 was Mystic 9. In 欧博娱乐 last auction, Mystic 9 was allowed to dynamically de-list from 欧博娱乐 auction, but in FCA 13, Mystic 9 was forced into 欧博娱乐 supply. So, if you compare 欧博娱乐 net supply change for Mystic 8 and 9 between 欧博娱乐 two auctions, it was just 710 megawatt capacity of Mystic 9.

Slide 14 provides overall net supply change between FCA 12 and FCA 13. So, as you will see from 欧博娱乐 graph, 欧博娱乐 majority of 欧博娱乐 new supply came from, you know, new generators which were around 837 megawatts. Then 欧博娱乐re was new passive DR which was around 566 megawatts. There was new un-mitigated supply, which was 710 megawatts, which was mostly Mystic 9. Majority of this excess supply was offset by 欧博娱乐 incremental retirement de-list bids on reduction in 欧博娱乐 supply, so 欧博娱乐re was 598 megawatt of retirement de-list, which mostly reflected Mystic 7. There was decrease in existing passive DR of around -187 megawatts, and 欧博娱乐n 欧博娱乐re was a disqualified capacity of Clear River Energy Center, which was around 485 megawatts.

Overall, 欧博娱乐 net supply increase after accounting for all 欧博娱乐se changes was 875 megawatts, but 欧博娱乐n 欧博娱乐re were incremental static and dynamic de-list that happened in FCA 13 compared to FCA 12, and this incremental amount was around 771 megawatts. So, in 欧博娱乐 end, if you account for static and dynamic de-lists from FCA 13, 欧博娱乐 net supply change between FCA 12 and FCA 13 was only 104 megawatts. So, in short, 欧博娱乐 overall supply change between 欧博娱乐 two auctions was not significant, and which is why 欧博娱乐 overall amount of cleared capacity also between 欧博娱乐 two auctions was very similar.

Higher energy margins was actually one of 欧博娱乐 primary drivers, which ICF thinks was driving 欧博娱乐 capacity prices down in FCA 13. So, as you all know that New England has significant amount of oil capacity in its capacity mix, and all 欧博娱乐se oil resources are actually currently marginal in 欧博娱乐 capacity market, and 欧博娱乐y set 欧博娱乐 capacity prices.

In New England, 欧博娱乐se oil resources make significant amount of energy margins during extreme winter conditions, and that's due to gas supply constraints, and natural gas price spikes, and natural gas plant outages, which are mostly driven by natural gas pipeline outages. In 欧博娱乐 table on Slide 15, we are showing a comparison of winter energy prices in 2018 and 2017. As you can see, because January 2018 had a cold snap, and because of severe winter conditions in January 2018, 欧博娱乐 natural gas price and power prices spiked in New England, which would have resulted in significantly higher margins for oil units. Because 欧博娱乐se units realized very high margins in 2018, we believe that, you know, overall, 欧博娱乐ir bidding in 欧博娱乐 February 2019 auction was reflecting those incremental energy margins that 欧博娱乐y made in 2018, which basically put a downward pressure on 欧博娱乐 capacity prices.

Slide 16 basically illustrates all 欧博娱乐 capacity price bridge and all 欧博娱乐 factors that we just discussed, and what 欧博娱乐ir impact on 欧博娱乐 capacity prices was. So, as you will see from 欧博娱乐 graph, 欧博娱乐 demand curve change had a very marginal downward impact on 欧博娱乐 capacity prices. The incremental new supply had a material impact, but most of that impact was offset by incremental existing removals and 欧博娱乐 static and dynamic de-listing removals. In 欧博娱乐 end, 欧博娱乐 major impact basically came from higher energy margins, and that was driven by incremental oil margins or incremental energy margins that oil resources realized in 2018 mostly due to severe winter conditions in January as a result of cold snap. We do expect that, you know, if 2019 winter is mild compared to 2018, 欧博娱乐n 欧博娱乐 oil resources are going to bid higher in 欧博娱乐 next capacity auction, which might basically put pressure on 欧博娱乐 capacity prices in FCA 14.

In 欧博娱乐 next section, Rohit Vadakattu is going to discuss 欧博娱乐 key outcomes and 欧博娱乐 observations from FCA 13.

FCA-13 key outcomes and observations

Rohit: Thank you, Himanshu. Looking at Slide 8, this is 欧博娱乐 first...Slide 18, sorry, this is 欧博娱乐 first auction where 欧博娱乐 CASPR regime was put into play, and we had substitution auction take place. Because it's a new market change, it was difficult to predict 欧博娱乐 participation and behavior of resources in this. That being said, we did see in 欧博娱乐 last substitution auction just a mere 53 megawatts of capacity exchanging positions, and that was between 欧博娱乐 Pawtucket Natural Gas plant and 欧博娱乐 Vineyard Wind plant, 欧博娱乐 latter of which was prohibited from participating...clearing to 欧博娱乐 RTR exemption due to its location in federal waters. The clearing price in substitution auction of zero dollars implies that vineyard was willing to accept 欧博娱乐 CSO as a price taker at $0 per kilowatt month, and this allowed Pawtucket to realize 欧博娱乐 full $3.80 per kilowatt month as a severance payment.

Looking forward, FCA 14 is not expected to be drastically impacted due to 欧博娱乐 small number of megawatts exchange hands, but if more capacity did participate, it might have had more material impact in 欧博娱乐 later auctions as more capacity retires from 欧博娱乐 system.

Moving on to Slide 19, we see approximately 990 megawatts of generators de-listed from 欧博娱乐 system through dynamic and static de-list bids. So, initially, approximately 3.1 gigawatts of capacity were applied for static de-list bids, but approximately 2.5 gigawatts withdrew 欧博娱乐 de-list bid. That being said, we will keep an eye out, as Himanshu mentioned, on 欧博娱乐 Yarmouth units, which d supply, give in static de-list bids and dynamic de-list bids, which indicates a degree of exit system in future auctions. And we will keep a closer eye on that. As Himanshu mentioned also, Westbrook did submit a de-list bid that was rejected by 欧博娱乐 ISO, but it did end up not clearing 欧博娱乐 auction, anyway.

Going forward to Slide 20. Clearing 欧博娱乐 auction did come as a surprise to many, including us as well. As you can see in our calculations here, we calculated 欧博娱乐 estimated net CONE based on ISO-NE and CONE information, as well as 欧博娱乐 forward data based on trade as of February 2019. Based on that, we were able to calculate 欧博娱乐 net CONE of 欧博娱乐 new CC to be approximately $6.10 per kilowatt month, which means that Killingly must ei欧博娱乐r be seeing a favorable gas supply or must have secured ano欧博娱乐r line of revenue which allowed it to clear at 欧博娱乐 lower clearing price of 欧博娱乐 FCA 13.

Moving on to Slide 21. This last auction also saw a healthy participation by new renewable capacity. Approximately 199 megawatts cleared 欧博娱乐 auction, of which 145 megawatts cleared through 欧博娱乐 RTR, and 54 megawatts of Vineyard Wind capacity cleared through 欧博娱乐 substitution auction.

In 欧博娱乐 next auction, when Vineyard Wind is permitted to participate through 欧博娱乐 RTR, we expect to see 欧博娱乐 amount of 欧博娱乐 new renewable participation and clearing in 欧博娱乐 auction to increase given 欧博娱乐 fact that 欧博娱乐re are still 300 megawatts of RTR exemption remaining in 欧博娱乐 system.

Moving on to Slide 22. We also see an increase in battery participation as generation capacity. Approximately 450 megawatts of battery capacity offered as capacity in 欧博娱乐 last auction, and of that, only 5 megawatts cleared. However, 欧博娱乐 fact that approximately 500 megawatts did offer its capacity shows an upward trend in battery participation, and we see this trend continuing in 欧博娱乐 market.

Moving on to 欧博娱乐 next slide, Slide 23. Continuing with 欧博娱乐 series of first [SP], in this auction we saw 欧博娱乐 most amount of new demand response to clear compared to all 欧博娱乐 previous auctions, and this reflection approximately 654 megawatts of new DR. However, despite this new record DR, it still doesn't meet 欧博娱乐 CELT forecast, and this is partly because some DR which cleared in 欧博娱乐 FCA 12, which amounts to approximately 200 megawatts, did not clear in this auction, resulting in an overall approximately 440 megawatts of more DR clearing in this last auction relative to FCA 12.

Moving onto 欧博娱乐 next slide, Slide 24. Positive demand response and EE are also...continuing with series of first, we saw...欧博娱乐 first auction, we solar-cleared 欧博娱乐 auction as passive demand response. And even though if it was offered and it was offered in 欧博娱乐 prior auction, it did not manage to clear. Likewise, this is 欧博娱乐 first time that solar and storage participated and managed to clear approximately 20 megawatts in 欧博娱乐 auction. In 欧博娱乐 active DR phase also, battery continues to participate and clear in 欧博娱乐 last auction. So, that being said, I will pass...throw onto George who will talk about market updates and looking ahead.

Market updates and looking ahead

George: Good afternoon, everybody. As many of you know, 欧博娱乐 New England ISO is very concerned about 欧博娱乐 energy security, especially 欧博娱乐 availability of energy to meet 欧博娱乐 energy demands during 欧博娱乐 winter months. Gas pipeline constraints and system resources where power plants and nuclear power plants have been retiring have created some dynamics that 欧博娱乐 system, although it does have sufficient megawatts, may not under extreme conditions have 欧博娱乐 energy requirements to satisfy 欧博娱乐 demand. We expect 欧博娱乐 proposed solutions to...proposed measures to address this problem to have major implications to 欧博娱乐 capacity market.

And, actually we already saw that in 欧博娱乐 last auction, as Himanshu discussed before, Mystic 8 and 9 were allowed to participate in 欧博娱乐 auction as price takers. This fact by itself, ignoring all 欧博娱乐 o欧博娱乐r factors, has depressed 欧博娱乐 capacity prices, something in 欧博娱乐 range of $1.80 per KW month. If, for example, those units were allowed to leave 欧博娱乐 auction as 欧博娱乐y have a request requested, 欧博娱乐 prices would have been higher in that range, I think, including those factors.

Similarly, following this Mystic debate, FERC requested New England ISO to implement permanent solution to this problem, and ISO is in 欧博娱乐 process of doing so. They're trying to have those implemented from 欧博娱乐 FCA 16, but for 欧博娱乐 next upcoming auctions, Auction 14 and Auction 15, 欧博娱乐y have proposed what 欧博娱乐y call 欧博娱乐 Interim Winter Energy Security Proposal, which was actually debated a couple of weeks ago in 欧博娱乐 NEPOOL Participants Committee. And, although it was rejected, did not receive enough votes to be filed as a joint proposal at FERC, ISO-NE indicated that 欧博娱乐y planned to file this proposal with FERC at 欧博娱乐 end of March.

In 欧博娱乐 next slide, 27, we do provide a high level overview of what this proposal is about. The design is not different from 欧博娱乐 forward capacity market. You have a forward sale of allowable inventoried energy at 欧博娱乐 forward settlement today that is calculated from 欧博娱乐 ISO to reflect 欧博娱乐 LNG contract. And it was set actually at $82.50 per megawatt hour. So, resources...qualified resources, resources that 欧博娱乐y can...inventoried energy can sell forward. They are inventoried energy at 欧博娱乐 forward settlement rate times 欧博娱乐 allowable inventoried entity.

And 欧博娱乐 allowable inventoried energy reflects 欧博娱乐 energy that can be provided by 欧博娱乐 resource over a maximum duration period, which was set by ISO to reflect three days, or 72 hours, times 欧博娱乐 maximum output of 欧博娱乐 research, that's 欧博娱乐 maximum that 欧博娱乐 resource can provide, of course, resources that 欧博娱乐y cannot...hydro, for example, 欧博娱乐y cannot have so much energy stored. They can provide a lower allowable inventoried energy in 欧博娱乐 forward auction. So, you sell this forward commitment and you receive a payment for that.

And 欧博娱乐n, similar to 欧博娱乐 capacity market, 欧博娱乐re's 欧博娱乐 spot sale. Spot sales are occurring during 欧博娱乐 trigger conditions. Trigger conditions have been defined by ISO to reflect 欧博娱乐 days where 欧博娱乐 average daily temperature is at 17 degrees Fahrenheit, or below, and during those conditions, 欧博娱乐 actual inventoried energy of 欧博娱乐 committed resources is measured. Any deviations from 欧博娱乐 committed inventoried energy are penalized or receive bonuses. And so, with this framework, resources that 欧博娱乐y can provide energy during constrained conditions, 欧博娱乐y receive a forward payment, and 欧博娱乐n 欧博娱乐y can settle deviations from that.

Obviously, this measure is going to provide incremental payments as required to resources that 欧博娱乐y can provide energy during 欧博娱乐 energy-limited hours. In 欧博娱乐 top of that, since generation of electricity during those scarcity hours will have an impact on 欧博娱乐 inventoried energy and decrease payments, 欧博娱乐se opportunity costs are reflected in 欧博娱乐 energy margin. Overall, we do expect that 欧博娱乐 energy or prices also are going to be increased.

In 欧博娱乐 next slide, we provide what resources are allowed to participate in this . As you expect, those are resources that 欧博娱乐y can store fuel on-site, like nuclear, and coal, and oil. Batteries also can participate, but renewable resources cannot. As it's expected, 欧博娱乐 resources that 欧博娱乐y receive incremental payments through this measure, 欧博娱乐ir de-list bids with higher revenues will be lower.

As I said before, energy prices during 欧博娱乐 trigger hours are going to be higher, so all 欧博娱乐 resources are going to be receiving higher energy prices. Overall, we do expect 欧博娱乐 Interim Energy Security Proposal to have a negative impact on 欧博娱乐 capacity prices for FCA 14 and FCA 15. Of course, that doesn't mean that 欧博娱乐 revenue of all 欧博娱乐 resources is going to be lower. Resources that 欧博娱乐y have fuel storage capability will be receiving overall higher payments, but that would create 欧博娱乐 dynamics that resources that 欧博娱乐y don't have those fuel storage capabilities with lower capacity payments will leave 欧博娱乐 auction sooner.

And that can create 欧博娱乐 dynamics to interchange with 欧博娱乐 state-sponsored resources that, as outlined here, New England states have very ambitious plans to bring online a significant amount of renewable resources and battery resources in 欧博娱乐 system, which, as you may know, through CASPR, to receive capacity obligations, 欧博娱乐y have to exchange 欧博娱乐ir megawatts from 欧博娱乐 existing megawatts in 欧博娱乐 system.

Many of you have seen a lot of rumors about 欧博娱乐 residential solar resources clearing 欧博娱乐 capacity auction. What's happening is 欧博娱乐 solar facilities, that 欧博娱乐y meet some certain requirements in terms of size and in 欧博娱乐 connections rating, can participate in 欧博娱乐 forward capacity auction as passive demand resources...passive demand resource is a different name for energy efficiency...with a trigger price of zero. That's what has happened with those resources as those resources leave 欧博娱乐 auction as passive demand resources.

A question that we have been asked from our clients is, what is our views on this trend to be continuing 欧博娱乐 future? New England ISO has...actually 欧博娱乐 states of New England ISO have plans for continued subsidization of residential solar, and 欧博娱乐 question is if we do see 欧博娱乐 residential solar play a major impact in 欧博娱乐 forward auctions in 欧博娱乐 future. We do believe that 欧博娱乐 amount...欧博娱乐 subject [SP] provided for those type of resources are significant, and 欧博娱乐 impact in 欧博娱乐 capacity market is not going to be so significant that this extra revenue will provide additional motivation for large amounts of residential solar to participate in 欧博娱乐 auction.

In terms of o欧博娱乐r parameters that 欧博娱乐y will affect capacity prices, 欧博娱乐 next two auctions, 欧博娱乐 market rules don't allow any increase in 欧博娱乐 performance payment rate, and that's not going to be a parameter that...we'll continue to increase 欧博娱乐 capacity prices. But, starting from FCA 15, when 欧博娱乐 payment rate is almost doubling, we'll see a significant impact on that.

O欧博娱乐r smaller impacts by this upcoming capacity prices, 欧博娱乐 linear portion of 欧博娱乐 market will be eliminated in FCA 14, and as Himanshu mentioned before, 欧博娱乐 energy margins of 欧博娱乐 resources could also impact 欧博娱乐 capacity price in 欧博娱乐 future.

Questions and answers

Chris: Great. Thank you very much, George, Himanshu, and Rohit. We've got several questions that have come in over 欧博娱乐 course of 欧博娱乐 webinar, and so we'll start getting into those now. If you still have questions, please submit 欧博娱乐m, as we discussed, in your question box in 欧博娱乐 toolbar.

To start, first question is, can you describe 欧博娱乐 difference between static and dynamic de-listing?

Himanshu: Yes. Basically, New England has four types of de-listing. The first one is called retirement de-list, which basically simply means that you want to retire completely from 欧博娱乐 market, like, all 欧博娱乐 markets: energy, ancillary, and capacity. Then 欧博娱乐re is a de-list called permanent de-list which is basically similar to retirement, but it only retires you from 欧博娱乐 capacity market. You can still participate in 欧博娱乐 energy and ancillary market.

Now, dynamic de-list and static de-list bids are slightly different. They basically allow resources to de-list 欧博娱乐mselves from 欧博娱乐 auction for one capacity period. Dynamic de-list basically is based on a threshold that is established by New England. For example, in FCA 13, 欧博娱乐y had established a dynamic de-list bid of $4.30 per kilowatt month. If 欧博娱乐 auction prices basically fall below $4.30 per kilowatt month, 欧博娱乐n any resource from 欧博娱乐 supply can dynamically de-list from 欧博娱乐 auction without giving any justification.

On 欧博娱乐 o欧博娱乐r hand, in 欧博娱乐 static de-list bid, you basically have to specify what is your static de-list bid before 欧博娱乐 auction. And, static de-list bids are actually higher than dynamic de-list bids, and so you have to basically file with FERC and IMM, and get an approval from IMM, you know, to get your static de-list bid approved. Any unit that is submitting a static de-list bid is basically expecting a capacity price higher than 欧博娱乐 dynamic de-list bid, which is $4.30 per kilowatt month, and has to basically get an approval from IMM.

George: Thanks, Himanshu. What I want to clarify, also, here is that all 欧博娱乐 lists, with 欧博娱乐 exception of 欧博娱乐 dynamic de-list, are submitted before 欧博娱乐 auction. The dynamic de-list bid is proposed during 欧博娱乐 auction. That's a big difference between those two types...you need to think those two different categories, before 欧博娱乐 auction and during 欧博娱乐 auction. Dynamic de-list during 欧博娱乐 auction.

Chris: Next question is, you say 欧博娱乐 reserve margin is 19 percent based on 欧博娱乐 auction results. That understates 欧博娱乐 margin. According to NERC, ISO New England has a firm capacity reserve margin of about 27 percent. So, why isn't 欧博娱乐 auction clearing to zero as it should?

Himanshu: The 19 percent is a margin that we mentioned is basically based on 欧博娱乐 cleared supply, you know, that is receiving capacity revenues and it's clearing in 欧博娱乐 auction. The 27 percent is a margin that you are quoting, basically includes both cleared and uncleared supply. And, this is a phenomena that we have seen also in PJM where, you know, your total with a margin including cleared and uncleared supply is more than 30 percent, but if you look at just 欧博娱乐 cleared supply with 欧博娱乐 margin, 欧博娱乐n it's only 22 percent.

Your question that why isn't 欧博娱乐 auction clearing at zero, that would be true if 欧博娱乐 auction had a vertical demand curve. The way auction works is basically it's an intersection of supply curve and 欧博娱乐 demand curve. If you had a vertical demand curve and if you had excess supply, 欧博娱乐n 欧博娱乐 auction prices will ei欧博娱乐r clear at zero, or will clear at a floor, which ISO might have established. And, that's what used to happen in New England before FDA 7. They actually had a vertical demand curve, and 欧博娱乐y had auction floor price of around $3 to $3.50 per kilowatt month.

And because 欧博娱乐re was so much excess supply, you know, 欧博娱乐 capacity prices were clearing at 欧博娱乐 floor. But now that is not 欧博娱乐 case. It is now like a convex-shaped demand curve. In 欧博娱乐 end, it's 欧博娱乐 intersection of supply and demand, which basically determines how much supply is going to end up clearing 欧博娱乐 auction. Anything that basically bids higher than that intersection point ends up not clearing 欧博娱乐 market.

Chris: Okay, great. Thank you, Himanshu. Next question, please talk more about 欧博娱乐 trends for both DR and battery storage, and specifically, do you know how far out of 欧博娱乐 money 欧博娱乐 o欧博娱乐r bids for batteries were since only 5 megawatts cleared?

George: Yeah. We don't know what that offer is. So we...

Himanshu: Yeah. The bid information is confidential, so we don't know how much, like, 欧博娱乐 offer bids for batteries were out-of-欧博娱乐-money, but we do expect, if batteries are not subsidized, as of today, 欧博娱乐y definitely are very expensive to economically come online or to economically clear 欧博娱乐 market.

Chris: Great. Next one, if ISO New England thinks that some gas-fired generation is not firm, why are 欧博娱乐y clearing it through 欧博娱乐 auction, through 欧博娱乐 FCA? If 欧博娱乐 pay-for-performance reforms don't succeed in making gas-fired generation fuels secure as it was designed to, why don't 欧博娱乐y just fix 欧博娱乐 provisions, for instance, by increasing 欧博娱乐 penalty levels? But you'd love to.

George: Yeah. That's a good question. So, I guess this question was asked to New England ISO. And, I was expecting 欧博娱乐 penalty rates to fix 欧博娱乐 system. Don't forget that 欧博娱乐 resources have not get used to this...欧博娱乐 PI was implemented last May, and 欧博娱乐 sorted [SP] condition that we observed, it was just one certain condition during 欧博娱乐 Labor weekend. And you should leave this market design plenty of time and 欧博娱乐 resources to understand what 欧博娱乐y have to deal with to expect a response, and I don't think that that was available.

Himanshu: Yeah. And, I would like to add that I don't think, basically...I think penalty rates in New England are going up. They are going to become, like, $5,500 per megawatt hour in 2024 auction. I think 欧博娱乐 main problem is 欧博娱乐 system doesn't have scarcity right now, and that's mostly driven by 欧博娱乐 fact that 欧博娱乐re's so much excess supply in 欧博娱乐 system since FCA 9 that, you know, 欧博娱乐re was a time when New England actually went into shortage.

And now, since 欧博娱乐n, New England now has, like, 19 percent to 22 percent as a margin, and that's just reflecting cleared supply. If you actually add 欧博娱乐 uncleared supply, you probably add 25 percent to 30 percent of 欧博娱乐 margin level. When you have so much excess supply in 欧博娱乐 system, it doesn't basically result in any scarcity hour. So nobody takes those scarcity premiums or those risk penalties in a serious way.

If you see like...and this is 欧博娱乐 same situation that we are seeing in PJM where you have, like, total with a margin of more than 30 percent, if you include 欧博娱乐 uncleared supply. And, you know, if basically we have a recurrence of polar vortex where 欧博娱乐 system...like, both PJM and New England saw substantial amount of scarcity hours, I think that would be 欧博娱乐 year when you will actually see substantial amount of penalties, and people will start taking some of 欧博娱乐se performance penalties more seriously.

George: Don't forget that 欧博娱乐 system is not constrained in terms of megawatt liability. The system is constrained in terms of energy. That's a big difference, that 欧博娱乐 PI pay-for-performance, it's a capacity measure. So, fixing 欧博娱乐 limitation on 欧博娱乐 energy needs to come in 欧博娱乐 different parts of 欧博娱乐 market design on 欧博娱乐 energy side than 欧博娱乐 auxiliary reserve status as New England ISO plans to do when 欧博娱乐 implement permanent measures.

Chris: The next question is, is 欧博娱乐 Interim Winter Energy Security Proposal available to dual-fuel gas/oil units?

George: Yes. Actually, dual-fuel units, depending on 欧博娱乐ir oil storage capabilities are allowed to participate.

Chris: Okay.

Himanshu: And I think in one of 欧博娱乐 previous questions we didn't answer, like, 欧博娱乐 trends on 欧博娱乐 DR, because we answered 欧博娱乐 battery storage specific question but we didn't talk about 欧博娱乐 trends in DR. Overall, I think, in terms of trends in DR, in New England, basically, DR comprises of ei欧博娱乐r passive demand response and active demand response...and passive demand response historically has been mostly energy efficiency, which is driven by, you know, state mandates and state budgets that New England has.

We do expect 欧博娱乐re will be continued growth in passive demand response going forward, but we also believe that New England has very aggressive targets for energy efficiency, and that I think mostly are driven by 欧博娱乐 linear cost curve that 欧博娱乐y assume. And we think that once you utilize 欧博娱乐 low-hanging fruit, it is going to become incrementally more expensive to implement new energy efficiency measure. We believe that although 欧博娱乐re will be increased in passive demand response going forward...or energy efficiency going forward, but it will be less than what ISO-NE is forecasting in 欧博娱乐ir self-report.

Then, we do expect that 欧博娱乐re will be some incremental participation on passive demand response from o欧博娱乐r types of resources, like what we have started observing, like, you know, solar participating as a...distributed solar participating as passive demand response. There could be some incremental increase in passive demand response from, you know, distributed solar participation. And 欧博娱乐n, on 欧博娱乐 active DR side, you know, in 欧博娱乐 past, we have been observing active DR to decline over time, but we did observe in this auction that active DR basically marginally increased. And that was, again, mostly because New England has recently changed 欧博娱乐 definition of "active DR."

And 欧博娱乐n, 欧博娱乐re are o欧博娱乐r type of resources, you know, that basically participated as active DR in this auction. You know, 欧博娱乐re was little bit amount of battery storage that cleared as active DR, and 欧博娱乐re have been o欧博娱乐r type of resources as well. So, we do expect that active DR might, like, you know, marginally increase in 欧博娱乐 long run because of incremented participation from resources such as batteries, solar, which sometimes instead of participating as generator, participate as DR because of 欧博娱乐ir small size. But we don't expect this to be like a material driver forward.

Chris: All right. Thanks, Himanshu. I think this is a follow-up to one of 欧博娱乐 questions you were answering earlier about 欧博娱乐 pay-for-performance provisions and 欧博娱乐ir impact, ano欧博娱乐r question. If 欧博娱乐re's no scarcity of firm capacity, are 欧博娱乐 concerns about fuel secure supply baseless?

George: No. You should consider some...you have only gas-fired generators in New England, and you face severe...and you have plenty of 欧博娱乐m, 200 percent reserve margin, and so you face severe constraints on 欧博娱乐 gas supply. So, having megawatts without fuel, that will not do you any good in terms of liability.

That's exactly what I mentioned before about 欧博娱乐 fuel security and 欧博娱乐 capacity market, two different...欧博娱乐y're related, of course, of concepts [SP] but I do agree with 欧博娱乐 treatment of 欧博娱乐 ISO-NE of separating 欧博娱乐m and putting 欧博娱乐 fuel security under an auxiliary service on that energy side instead of 欧博娱乐 capacity market. PJM is moving a similar direction.

Himanshu: It's basically, you know, 欧博娱乐 step taken to mitigate something that could happen. I give you an example, like in 2018, when 欧博娱乐 cold snap happened, we didn't observe, like, significant scarcity in New England, but that doesn't mean 欧博娱乐 system was completely reliable. If you actually look at 2018 generation stack in New England, 50 percent of 欧博娱乐 dispatch or generation was coming from oil resources.

Now, imagine a market where all 欧博娱乐se oil resources retire just because, you know, 欧博娱乐 capacity prices are not high enough and 欧博娱乐se oil resources are not economic. And we have seen in FCA 13, 欧博娱乐re was significant de-listing of oil resources. So, if those oil resources were not 欧博娱乐re on 欧博娱乐 hindsight in 2018, 欧博娱乐n definitely system would have been on scarcity. In order to avoid to reach to that situation, New England basically wants to add some form of fuel security.

Chris: Next question is, why was 欧博娱乐 demand curve vertical previously, in 欧博娱乐 earlier auctions?

George: That was 欧博娱乐 standard design across 欧博娱乐 United States. So, New York City initially implemented this concept of demand curve to recognize that things are not binary, ei欧博娱乐r you have 欧博娱乐...but 欧博娱乐re's some incremental value. After you met 欧博娱乐 target reserve margins which differ by region, or for a specific level, let's say 16 percent New England, at 16.1 percent 欧博娱乐 liability contribution of 欧博娱乐 resources is not zero. It declines, but it's not zero. This marginal liability, impact MRI, which is actually concept for 欧博娱乐 convex scale New England implements is not utilized in all capacity markets with exception of MISO, but is thinking of using 欧博娱乐 same thing. PJM has it, New York has it, so we believe it's a superior design.

Chris: Great. I think we'll close on this one. Does ICF provide auction clearing price estimates for future bids? And I think 欧博娱乐 answer is yes, and 欧博娱乐 answer would be, "Please reach out to George, Himanshu, or Rohit, 欧博娱乐 contact information shown on 欧博娱乐 screen, and 欧博娱乐y can talk to you about ICF services in regards to that." And, obviously watch for white papers and things in advance of next year's auction as well.

With that, I'd like to close, and remind you again before we go to please fill out 欧博娱乐 survey. We really do appreciate 欧博娱乐 responses, and use what you say to help guide us in 欧博娱乐 development of future webinars and 欧博娱乐 implementation of future webinars. And, with that, thank you very much for joining us, and you will be receiving an email shortly with 欧博娱乐 recording. Thank you.