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Retirements and Resource Options

Retirements and Resource Options. Pete Fuller Restructuring Roundtable June 14, 2013. Today’s Discussion. ISO’s Retirement Study and Capacity Zones: An Opportunity Lost The Future Resource Mix: It’s Not Too Late to Choose a Better Alternative. The Scenario That Matters.

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Retirements and Resource Options

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  1. Retirements and Resource Options Pete Fuller Restructuring Roundtable June 14, 2013

  2. Today’s Discussion • ISO’s Retirement Study and Capacity Zones: An Opportunity Lost • The Future Resource Mix: It’s Not Too Late to Choose a Better Alternative

  3. The Scenario That Matters Source: ISO New England’s Strategic Transmission Analysis, Restructuring Roundtable, 6/14/13

  4. The Future Under FCM PI • Existing Resources • Offers are limited to one year of going-forward costs plus expected performance risk • Marginal resource ends up, at best, with ‘going-forward’ costs, which is insufficient to own and operate. Substantial risk of cash losses due to under-estimated penalty impacts • Strong incentive to retire unconditionally • Transition of the fleet • Anticipate significant reliability issues due to widespread retirements (see Scenario I) • Volatile FCM pricing based on system short or long position in any given year

  5. The NRG Alternative • Energy Market Pricing Reforms • Real-time prices to reflect scarcity of reserves and operator actions to maintain adequate reserves • Capacity Market Mitigation • Allow existing resources to reflect net long-run costs in their offers • “Peak Energy Rent” • Eliminate this inefficient hedge mechanism • Capacity Performance Metric • Reward resources that are more available than assumed in setting capacity requirements

  6. The Future with the NRG Alternative • FCM • Existing resources offer their actual economic preference to continue operating • The margin is contestable by both existing and new resources, leading to more stable prices based on long-run resource costs • EFOR incentive encourages overall availability improvements • Energy/Ancillary Services • Scarcity conditions are signaled through pricing to both load and supply, incenting efficient hedging behavior, both short- and long-term • Real-time pricing opportunities drive improvements in flexibility and operational reliability

  7. It’s Not Too Late ....

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