The Latest ISO-New England Capacity Auction Shows Big Gains for DER

The independent system operator of New England (ISO-NE) conducted its annual forward capacity auction for the 2022-2023 delivery year in February 2019. In late March 2019, it released the results of its Demand Resources Working Group in the auction, including energy efficiency, demand response, and distributed generation. Despite the clearing price closing at the lowest in 6 years and maintaining its multiyear declining trend, demand resources continued to clear higher volumes, at 12% above the previous auction. This outcome is a microcosm of larger trends in the energy industry where distributed energy resources are replacing fossil-fueled central generators at lower costs.

Total cleared demand resources topped 4,000 MW, which is about 16% of peak load for New England. Energy efficiency or baseload distributed generation make up 87% of the demand resources, while the rest is dispatchable demand response. Demand resources include 317 MW of fossil fuel-fired distributed generation and 100 MW of renewable generation total. However, new renewable resources outnumbered fossil-fired, 90 MW versus 64 MW, respectively. 

Shifting Toward Renewables

An example of this shift in this ISO-NE auction is Sunrun’s announcement of becoming the first company to clear capacity for a solar plus storage project in a US wholesale market. Sunrun won its bid to provide 20 MW of its Brightbox home solar and battery systems, which represents approximately 5,000 New England customers. Given that the auction cleared at a relatively low price, this result shows that solar plus storage can compete economically with traditional resources, or even beat them. This capacity payment also opens a new revenue stream for Sunrun, which will enable the company to further lower costs to its customers.

On their own, solar resources have a hard time participating in wholesale capacity markets, as it requires a year-round commitment to being able to provide energy, which is a risky proposition with high penalty potential. When paired with storage, however, solar can be a more stable resource, lowering risk to the developer and the grid. Sunrun and National Grid’s unregulated business embarked on a partnership in 2016 that includes a jointly staffed collaboration to develop grid services with Sunrun’s solar and storage assets. The result at this ISO-NE auction is the culmination of that partnership.

Imperfect Policy

There are still many policy issues that need to be worked out before more clean energy resources are enabled to participate in wholesale markets. After the auction, the six New England governors announced a commitment to evaluate regional mechanisms to help maintain critical nuclear and clean energy facilities. They stated that, "to the extent a state's policies prioritize clean energy resources, those states commit to work together on a mechanism or mechanisms to value the important attributes of those resources, while ensuring consumers in any one state do not fund the public policy requirements mandated by another state's laws."

Integrating more distributed and renewable resources will not be a simple exercise. It will require coordination between wholesale and retail markets, utilities, regulators, vendors, and customers. The payoff to all stakeholders and the planet, however, will be worth it.