ISO Auction Shows That Invenergy’s Proposed Plant Is Not Needed

Jerry Elmer

Readers will recall that the two major arguments used by Invenergy in support of its plan to build a gigantic (900 MW to 1,000 MW) fossil-fuel power plant in Burrillville, Rhode Island, are that the plant is needed for the reliability of the electricity grid and in order to save ratepayers money. Both of these arguments are predicated on the supposed shortage of existing electricity generation capacity in the geographical part of New England’s electricity grid that includes Rhode Island.

On Monday, February 8, 2016, ISO-NE, the entity that runs the New England electricity grid, conducted its tenth annual Forward Capacity Auction (called FCA-10) to procure electricity generation capacity for the zone that includes Rhode Island.  As a result of the auction, we learned something very important:  both of Invenergy’s primary arguments are wrong.

The ISO’s figures don’t lie; they tell a very simple, straightforward story:

  • The Invenergy plant’s power is not needed in Rhode Island; we actually have a surplus of power without Invenergy.
  • The Invenergy plant, if built, would have a negligible effect on the price that ratepayers pay for electricity.

Let’s look at the actual figures from the just-concluded auction.

Invenergy tried to sell all 900 to 1,000 MW of its proposed new plant in the auction, but the ISO only took 485 MW of that amount. Invenergy ended up with a Capacity Supply Obligation (CSO) of only 485 MW!

Overall, the ISO was trying to obtain 34,151 MW of generation capacity for the six New England states. This is the ISO’s Installed Capacity Requirement (ICR), the amount of electricity needed to meet peak demand in New England and still keep the lights safely on.  In fact, the ISO actually procured 35,567 MW in the auction, that is, 1,416 MW more than was required.

The results here in the Southeastern New England (SENE) zone were similar. For the SENE zone, the ISO had a so-called Local Sourcing Requirement (LSR) of 10,028 MW.  That means that 10,028 MW (of the 34,151 MW total) had to come from generation plants located here in Southeastern New England.

That is the key figure: 10,028 MW of generation had to come from generation plants located here in Southeastern New England.

In the auction conducted on February 8, the ISO actually procured 11,384 MW here in Southeastern New England – that is, fully 1,356 MW more than the LSR of 10,028 MW that was needed!

What would happen if you removed all of Invenergy’s CSO of 485 MW from the 11,384 MW that cleared the auction in the SENE zone? You would be left with 10,863 MW in the zone – still significantly more than the LSR of 10,028 MW needed locally.

The bottom line is very, very simple: the Invenergy plant is just not needed for system reliability.  It is not needed to keep the lights on.  Rhode Island, Southeastern New England (SENE), and all of New England have a surplus of generation capacity without Invenergy’s proposed plant.

Nor are there ratepayer savings from the Invenergy plant. Invenergy’s (incorrect) argument about ratepayer savings is predicated on the idea that the price for capacity here in the SENE zone would be much higher than in the rest of New England (called “Rest of Pool” by the ISO).  (In fairness to Invenergy, that was true in the prior two capacity auctions run by ISO:  FCA-8, which was held two years ago; and FCA-9, held one year ago.)  But it was absolutely not true in FCA-10, conducted on February 8 this year.

In FCA-10, the SENE zone cleared the auction at $7.03/KW-month, and Rest of Pool cleared the auction at $7.03/KW-month – the exact same clearing price. This stands to reason.  There was no shortage of generation capacity here in the SENE zone.  That’s why there was no “price separation” between the SENE zone and the Rest of Pool.

And that’s why the presence or absence of the Invenergy plant will have no material impact on ratepayers. Again, this stands to reason:  if the presence Invenergy plant’s power was going to help save money for ratepayers, then the ISO would have taken all of Invenergy’s 900-1,000 MW.  The reason that the ISO wasn’t even interested in buying all of Invenergy’s generation capacity is that Invenergy’s capacity just wasn’t going to bring down the capacity clearing price.  The capacity price was already as low as it could go.

I acknowledge that these figures can be confusing and these acronyms can cause a normal person’s eyes to glaze over. But the bottom line remains simple.  The electricity from the Invenergy plant is not needed; and the presence or absence of the plant will not materially affect the price of electricity.

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3 Responses to “ISO Auction Shows That Invenergy’s Proposed Plant Is Not Needed”

  1. Mary Pendergast,RSM

    I appreciate your clarity in an issue that looks confusing! I love the “bottom line.”
    “The electricity from the Invenergy plant is not needed; and the presence or absence of the plant will not materially affect the price of electricity.”

  2. Augustus (Gus) K. Uht, Ph.D., P.E. (Electrical)

    [Disclosures: I am not a power engineer and have not been following the details of the related developments in the Invenergy plant saga.]

    I understand some of your arguments, and they may be absolutely true, but they also may be wishful thinking. [I would appreciate a link to the FCA=10 documents, if you have one.]

    Here are a couple of other possibilities:
    1) From an engineering point of view one always builds safety margins into the designs of devices, etc. The ‘extra’ capacity put into the estimate may just be part of the safety margin. And a large safety margin would not be unreasonable for an estimate years out into the future; predicting demand is extremely hard. If, at the end of the day, there is one extra MW of capacity then there is no problem; however, 1 MW under and we’re in trouble. Brown-outs can destroy equipment. Also, the vagaries of the weather, especially recent years’ weather would argue for a large safety margin.

    2) The buyers in the FCA-10 auction may actually be looking more than three years out. They may estimate (non-publicly) a higher possibility of lack-of-capacity in such years, and want to ensure that the capacity is there. Given the long lead time of plant construction, and the desire of Invenergy to get funding in the near term for the new plant, the operators may have decided to be safe and support the new plant at least partially by buying some capacity from it.

    3) Timing: the plant might only be finished mid-year and thus only be able to supply 6-months worth of its total capacity in the 12 months covered by the auction. In such a case they only would want to sell 1/2 of the plant’s capacity, and that’s all they could sell.

    4) Keeping everyone on board: not only will Invenergy be more likely to get a loan now, in general this will project a more positive image for the plant’s construction.

    Hopefully we will learn more about the true reasoning behind the auction’s results and be able to determine how much is reasonable and how much isn’t. For now, I just wanted to verbally explore the possibilities and share them with you.

    Regardless, I’m not a fan of the proposed plant for many reasons.

    —-Gus Uht

    [These statements are my own, etc……]

    • Sunny Kravitz

      If the goal of the Grid is to keep stable market conditions & protect the profit margin of the utilities, there would be no current need for renewable generation thru solar or wind. As a NH resident it appears that the NH PUC seeks to protect the profit margin of the utilities rather than bring energy costs down with solar & wind for the consumer.

      Oil & gas markets are currently in chaos, but since those sources are finite, eventually prices will go back up – unlike solar & wind.

      Wake up America!!

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