New auction for renewable energy

Mar 21, 2018

BY: CCNH-LFDA Highlights

ISO New England, the independent organization responsible for managing New England’s electricity grid, is implementing a new system that allows renewable power sources to bid to replace the electricity generated by old fossil fuel power plants.

What is the role of ISO New England?

ISO New England manages the entire electricity grid in New England, including the sale of electricity from power plants to utilities. Every year, ISO New England estimates how much electricity needs to be generated in order for New England’s grid to stay reliably up-and-running. An auction is then held where electricity generators bid for contracts to supply a portion of those energy needs. This ensures there is always a reliable, cost-effective supply of electricity for everyone.

How does ISO New England treat renewable energy differently?

Many states, including New Hampshire, have laws that give renewable energy sources financial advantages. For example, the Renewable Portfolio Standard requires utilities to purchase a certain amount of electricity from renewable sources. 

However, ISO New England doesn’t let renewable energy generators take those state subsidies into account so that they can bid more cheaply for a share of space in the electricity supply. Instead, ISO New England requires most renewable energy power plants to bid as if they did not receive any government-sponsored benefits.

In theory, by removing the subsidies from the auction, ISO New England ensured that the grid does not favor some renewable energy sources that might not actually be cheap for customers in the long run, without government help—help that could depend on the whims of participating state’s legislators.

A whole new auction for renewable energy

This year ISO New England is adding an entirely new auction to give renewable energy sources more opportunities to win contracts to contribute to the grid.

After the first auction to supply the electricity required to meet the region’s needs, there will be a second auction. This second auction specifically allows older power plants that won contracts in the first auction – particularly fossil fuel plants – to retire and instead sell their space on the grid to renewable energy sources that didn’t win in the first auction. In this second auction, renewable energy sources would be allowed to take their government subsidies into account when they make their bids.

Pros, cons of the new auction

Supporters of ISO New England’s new system argue that it reasonably supports state efforts to boost renewable energy and retire old, dirty power plants.

Opponents of the new system are concerned that coal and oil power plants will retire too quickly, placing too much pressure on the remaining natural gas power plants. Natural gas already provides the largest share of electricity in New England, and a shortage of gas has caused price spikes.

Other opponents of the new system argue that renewable energy sources should be able to use government subsidies in their bids in the first auction, rather than wait for a special second auction.

Given the complexity of the electricity market, the degree to which this second auction will encourage moving from old fossil fuels to renewable energy sources—and the impact it might have on energy prices—is difficult to predict.

How do you think ISO New England should treat renewable energy sources? Share your opinion in the comments below.

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RELATED ISSUE

Renewable Portfolio Standard add a comment
Should New Hampshire maintain the renewable portfolio standard, which requires public utilities in New Hampshire to obtain a certain percentage of electricity from renewable energy sources (25% by 2025)?

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