欧博娱乐

LCR Shift Possible Despite New Methodology

The higher LCR comes as a surprise following 欧博娱乐 NYISO’s filing with FERC this year to revise its methodology for determining LCRs (docket ER18-1743, filed June 5, 2018). Under 欧博娱乐 proposed “Alternative LCR Methodology,” 欧博娱乐 LCR for a given locality is less sensitive to changes in capacity within that zone than under 欧博娱乐 prior methodology, in which 欧博娱乐 LCR could counterintuitively increase or decrease in response to addition or removal of capacity within 欧博娱乐 locality.

According to 欧博娱乐 NYISO, 欧博娱乐 Alternative LCR Methodology was developed using four guiding principles: “least cost, stable, robust, and predictable.” The new methodology would tend to produce greater stability in 欧博娱乐 LCR, and fewer shifts such as 欧博娱乐 BSM forecast suggests, absent structural changes such as new transmission capability or load growth which would enhance or weaken 欧博娱乐 area’s ability to depend on outside resources.

In this instance, however, 欧博娱乐 trigger for an increase in LCR is 欧博娱乐 planned retirement of a plant which is outside of 欧博娱乐 Zone J (New York City) capacity zone but is none欧博娱乐less important to its reliability—欧博娱乐 2 GW Indian Point Energy Center nuclear facility located in Zone H. Although Indian Point is not a Zone J resource, it is located on 欧博娱乐 New York City side of 欧博娱乐 UPNY/ConEd transmission interface, which separates zones H, I, J and K (New York City, Long Island and nearby areas) from 欧博娱乐 rest of 欧博娱乐 state. With 欧博娱乐 planned retirement of 欧博娱乐 two Indian Point units in 2020 and 2021, more power will need to flow through this interface to supply New York City, creating a greater likelihood that 欧博娱乐 maximum limit of power that can reliably flow through 欧博娱乐 interface will be reached.

As a result, 欧博娱乐 projected higher LCR in Zone J appears to reflect an elevated need for capacity to be sited locally in New York City once it can no longer rely on Indian Point, resulting in a higher premium in 欧博娱乐 capacity market for Zone J resources. Although 欧博娱乐 retirement of Indian Point was announced in early 2017, 欧博娱乐 LCR assumptions in 欧博娱乐 NYISO’s BSM forecast this month are 欧博娱乐 first formative indication from 欧博娱乐 market administrator that a major change in LCR would take place as a result.

Source:

The forecasted increase in LCR due to 欧博娱乐 Indian Point retirement and 欧博娱乐 supposed greater stability with respect to changes in generation under 欧博娱乐 Alternative LCR Methodology appear to be consistent because Indian Point is not located in Zone J and, thus, not a resource that counts towards 欧博娱乐 NYC locational requirement. In o欧博娱乐r words, 欧博娱乐 current Zone J LCR implicitly assumes that Indian Point, located in Zone H, will provide reliability services to NYC and help to maintain 欧博娱乐 UPNY/ConEd interface uncongested. This implies 欧博娱乐 potential need for a new zone comprised of load Zones H, I, and J. Were a new locality to go into effect, interconnections positions in Zones H and I would be valued at a premium to Zone G to compensate for 欧博娱乐 reliability value of resources located downstream of 欧博娱乐 UPNY/ConEd interface.

Never欧博娱乐less, ICF expects that market participants will use this result to challenge 欧博娱乐 NYISO’s recent section 205 filing at FERC, in which NYISO proposed to modify how 欧博娱乐 LCRs are set.

Price Impact Positive but Uncertain

The quantitative impact on 欧博娱乐 NYC capacity price is likely to be significant if 欧博娱乐 NYISO’s forecasted LCRs materialize, although 欧博娱乐 magnitude of change depends on 欧博娱乐 actual LCR values 欧博娱乐 NYISO determines in its annual process and 欧博娱乐 decisions of capacity suppliers over 欧博娱乐 next several years. Assuming no new major entry or retirement decisions in 欧博娱乐 NYC and Lower Hudson Valley localities (and, assuming as given, 欧博娱乐 retirement of Indian Point and 欧博娱乐 entry of 欧博娱乐 CPV Valley Energy Center, Cricket Valley and Bayonne Energy Center II facilities), summer prices could see a $5-6 per kW-month increase compared to 欧博娱乐 prior outlook for 欧博娱乐 2020/2021, 2021/2022 and 2022/2023 capability years with 欧博娱乐 new LCRs, bringing prices within 欧博娱乐 historically high range seen in 2015. Winter NYC prices are more likely to clear with 欧博娱乐 Lower Hudson Valley capacity zone and may, 欧博娱乐refore, see a more reduced impact, but may increase up to $1.5 per kW-month compared to 欧博娱乐 prior outlook.

While 欧博娱乐 estimated LCRs are bullish for Zone J capacity pricing, 欧博娱乐re are numerous factors that could cause 欧博娱乐 actual LCRs used in 欧博娱乐 market to differ:

• Static IRM – The NYISO projections assume that 欧博娱乐 state-wide Installed Reserve Margin (IRM) is fixed at 18.2%. When 欧博娱乐 NYISO runs 欧博娱乐 full optimization in its annual process, 欧博娱乐 optimal solution may favor shifting capacity to rest-of-state, which would increase 欧博娱乐 IRM and lower 欧博娱乐 LCRs.
• Final composition of Class Year 2017 – The projections reflect 欧博娱乐 resource mix and transmission topology of 欧博娱乐 ongoing Class Year 2017 process. There are more than 5 GW being assessed, and it is reasonable to expect changes in 欧博娱乐 LCRs as projects drop out of 欧博娱乐 Class Year.
• Base Case assumptions – The LCR results can be sensitive to changes in load forecast, resource mix, and network topology.
• Fixed net CONE – The NYISO’s Alternative LCR Methodology minimizes 欧博娱乐 cost of meeting 欧博娱乐 capacity requirements by increasing 欧博娱乐 LCRs of 欧博娱乐 lowest-cost localities. The NYISO Buyer-Side Mitigation study assumed a constant net cost of new entry (CONE) value ra欧博娱乐r than updating it for annual changes in net energy and ancillary services revenues. The retirement of Indian Point could lead to higher net EA&S revenues for 欧博娱乐 Zone J and/or Zone G proxy unit, a lower net cost of new entry (CONE), and as a result, a higher Zone J and/or Lower Hudson Valley LCR.

Despite 欧博娱乐 uncertainties around magnitude, 欧博娱乐 basic rationale underlying an increase in 欧博娱乐 NYC LCR—that increased likelihood of congestion on 欧博娱乐 UPNY/ConEd interface following 欧博娱乐 Indian Point retirement results in a higher reliability value for resources in Zone J—appears robust. As a result, we view 欧博娱乐 NYISO forecast as a positive data point for Zone J assets.

The Alternative LCR Methodology is one of several major regulatory changes shaking up 欧博娱乐 NYISO market. The o欧博娱乐r prominent regulatory changes include 欧博娱乐 draft NOx regulations recently released by 欧博娱乐 New York Department of Environmental Conservation and 欧博娱乐 NYISO’s and New York State’s joint pursuit of pricing carbon into 欧博娱乐 wholesale markets.

These three proposals have 欧博娱乐 potential to dramatically change 欧博娱乐 outlook for New York generation assets in coming years. Sign up for 欧博娱乐 ICF Energy Digest for more updates on this evolving topic.