Market Design Through a Period of Transition

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Presentation transcript:

Market Design Through a Period of Transition NE Electricity Restructuring Roundtable March 22, 2019

Markets reflect their surroundings What does the future look like? Outline Markets reflect their surroundings What does the future look like? Wholesale market focus Natural gas – a lone competitor in a period of transition? Implications A few thoughts going forward Presentation Name | Client Name | Month Day, Year | ATTORNEY WORK PRODUCT – PRIVILEGED AND CONFIDENTIAL

Markets for What? State carbon policy: nuclear, hydro, renewables RMRs or bust – coal, oil What’s left, other than natural gas as a competitive residual reliability resource? What does that look like going forward, with forces pushing in different directions? Some shifts move away from gas and markets (state resources, RMRs, distributed resources) Others highlight a pervasive need for economic gas-fired generation (retirements, electrification (heating, transportation)) What does this mean for markets? Presentation Name | Client Name | Month Day, Year | ATTORNEY WORK PRODUCT – PRIVILEGED AND CONFIDENTIAL

A Focus on Growth in OOM Resources (2018-2027): Impact on Gas Demand, Revenues By Fuel Type Note: [1] Generation by all other sources includes nuclear, wind, solar, hydro, landfill gas, methane, refuse, steam, wood, and imports. Sources: [1] ISO-NE, 2018 Forecast Data (CELT Report 2018-2017). [2] Solar and wind capacity factors from Lawrence Berkeley Laboratory, Utility-Scale Solar 2018 and US DOE, Wind Technologies Market Report 2017. [3] State power procurements based on reports in SNL Financial as well as MA,CT, and RI press releases. Presentation Name | Client Name | Month Day, Year | ATTORNEY WORK PRODUCT – PRIVILEGED AND CONFIDENTIAL

RELIABILITY ZONE CARBON REDUCTION ZONE Presentation Name | Client Name | Month Day, Year | ATTORNEY WORK PRODUCT – PRIVILEGED AND CONFIDENTIAL

GW) Presentation Name | Client Name | Month Day, Year | ATTORNEY WORK PRODUCT – PRIVILEGED AND CONFIDENTIAL

Presentation Name | Client Name | Month Day, Year | ATTORNEY WORK PRODUCT – PRIVILEGED AND CONFIDENTIAL

Presentation Name | Client Name | Month Day, Year | ATTORNEY WORK PRODUCT – PRIVILEGED AND CONFIDENTIAL

Presentation Name | Client Name | Month Day, Year | ATTORNEY WORK PRODUCT – PRIVILEGED AND CONFIDENTIAL

Natural Gas-Fired Power Generators Key Question Generators have options Retire Absorb performance risks; take the chance That gas will be available, at a price That in any event, ISO will act to eliminate the risk (e.g., posture oil units) Pay (and collect in the FCM) cost of mitigation the risk Firm mitigation alternatives Dual fuel capability Firm transportation LNG forward contracts Will the next phase of market rule changes help? Presentation Name | Client Name | Month Day, Year | ATTORNEY WORK PRODUCT – PRIVILEGED AND CONFIDENTIAL

If at First You Don’t Succeed… Risk Assessment (2010+) Generator fuel responsibility (2013) Energy-gas market timing (2013+) Reserve levels and prices (2012+) Generating unit posturing (past and ongoing) Pay for Performance (2015) Winter Reliability Program (2014-2018) CASPR (2018) Fuel Security Reliability Assessment, Mystic (2018, ongoing) Opportunity costs (ongoing) Interim Compensation (?) Market-based fuel security designs… Presentation Name | Client Name | Month Day, Year | ATTORNEY WORK PRODUCT – PRIVILEGED AND CONFIDENTIAL

Some Thoughts on Implications What happens with gas-fired generation is the question The march of carbon policy will not abate The absurd Rationalize carbon policy through pricing CO2 in all energy markets is the easiest (administratively), and (b) can peacefully coexist with markets …And is the least likely outcome Reality – without a sufficient carbon price, state policies and technological change will be continuously disruptive Reliability, retail rate design Reliable system operations Wholesale markets Focus on reliability needs, existing infrastructure Consider the transition – better integration of planning with wholesale markets as infrastructure rapidly evolves? Presentation Name | Client Name | Month Day, Year | ATTORNEY WORK PRODUCT – PRIVILEGED AND CONFIDENTIAL