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Observations on Forward Capacity Market Objectives and Implications for Electric Restructuring

This document outlines observations and insights from the Electric Restructuring Roundtable regarding the Forward Capacity Market (FCM) objectives. Key goals include implementing a capacity market with a defined product, providing market signals for new entry, and creating a stable market around the cost of new entry. The first Forward Capacity Auction (FCA1) revealed significant supply offers, with existing capacity surpassing requirements. Concerns about flexible resources and OP4 events are discussed, emphasizing the importance of future FCA results for New England's energy landscape.

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Observations on Forward Capacity Market Objectives and Implications for Electric Restructuring

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  1. The First FCA: Observations & Thoughts Tom Kaslow April 11, 2008 Electric Restructuring Roundtable

  2. Forward Capacity Market Objectives • Implement a capacity market with a defined capacity product. • Provide market signals that encourage new entry where and when needed. • Implement a market that will stabilize and equilibrate around the cost of new entry. Electric Restructuring Roundtable

  3. First FCA Observations • Significant qualified supply offered into FCA1. • Existing capacity exceeded ICR & LSR requirements. • Auction cleared at the floor, but only one data point. • ISO filing identifies conflicting standards. • Installed Capacity Requirement/Local Sourcing Requirement plan into OP4 • Transmission Security Analysis plans to avoid OP4 Electric Restructuring Roundtable

  4. What might be over the horizon? • Will any of the hardwired FCM mechanisms create problems? One possible scenario for FCA2. Electric Restructuring Roundtable

  5. What might be over the horizon? • FCM will get what it signals. Will it be what we need? • Could displacement of flexible resources with less predictable energy sources (intermittent resources) or resources with less access outside of OP4 lead to increased frequency of OP4 events? • Is there a desirable upper bound on OP4? • What are the economic, reliability and environmental considerations of higher OP4 frequency? Electric Restructuring Roundtable

  6. Conclusion • New England has a lot riding on FCM. • Subsequent FCA results will be important. • Need to consider acceptability of possible future outcomes. • Frequent OP4. • Early sustained surplus might lead to prices spikes later. Electric Restructuring Roundtable

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