Making electricity in New England is going to keep getting cheaper, judging from the results of the latest regional auction for power production three years down the road.
The 14th annual Forward Capacity Auction, in which firms predict the cost of making power in 2023, closed on Monday with a record-low price of $2 per kilowatt-month. That’s barely half the price of $3.80 that set in last year’s auction and far less than the $5.30 figure set three years ago for production this year.
The FCA, as its known, is run by ISO-New England, the group that oversees the six-state power grid in New England. It is designed to ensure that enough power plants or “non-wires alternatives” will be available three years from now to keep the lights on, even at peak demand.
Power plants bid into the auction, guaranteeing that they will be able to supply certain amounts of electricity at certain prices in 2023-2024 or else face heavy fines.
In general, the lowest prices win and the power plants get paid that amount whether the electricity is ever needed or not, as a financial incentive to be available at all times.
These capacity payments can make or break power plants such as Merrimack Station in Bow. That coal-fired plant gets paid to generate electricity less than one month a year because its power is relatively expensive, so capacity payments are a major part of its income.
Details about which specific power plants were chosen in the latest auction are not yet available.
The auction concluded with commitments from 33,956 megawatts of power to be available in 2023-2024, which is 1,466 megawatts more than the estimated maximum needed. For comparison, that excess is slightly more than the maximum output of Seabrook Station nuclear plant at any given time.
The whole idea of capacity markets can be controversial. The Sierra Club, for example, argues that they artificially support existing (i.e., dirty) power plants, shut out new types of renewables, and raise costs. If you want to dive into the weeds, they’re got a long report here, part of an examination of capacity markets in Connecticut.
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Actually, the Capacity Auction has nothing to do with what price you will supply energy at, and has no bearing on the cost of the actual energy. Capacity markets ensure that enough generation will be available to meet supply by paying generators to stick around in case they are needed, nothing more.
Yes, but no – the per-kw price that a power plant is willing to sell energy at is affected by income from the capacity auction. If you dont have a capacity auction then the energy price must be higher to cover fixed costs.