E&E Publishing reports that the Midcontinent Independent System Operator (MISO) just held its most recent capacity auction for the year that runs from June 1, 2015, to May 31, 2016. Capacity payments are made to generation facilities to ensure that they will be available when needed. Prices tend to be very low unless capacity is constrained, at which point prices can spike dramatically. According to a chart on page 9 of the MISO 2013 Annual Market Assessment Report, from 2010 to 2013, capacity costs amounted to a small fraction of the total MISO wholesale energy market – a market that ranged from $14 billion to $22 billion per year throughout the period. In the 2013-2014 auction, prices in most MISO zones cleared at just $1.05 per MW-day ($383 per year per MW, which amounts to less than $1 per customer per year).
In the most recent auction, reports Argus Media, capacity prices were $3.48 per MW-day throughout most of the region—still a very small portion of energy costs. However, in zone 4, which covers southern Illinois, capacity costs rose to $150 per MW-day, nearly 50 times the clearing price throughout the rest of the market. This could cause a significant increase in energy prices and raises concerns about additional capacity shortfalls for the next capacity auction, which will cover the 2016-2017 delivery year.
Implications for Energy Buyers
Electricity buyers who have already locked in prices in this region may benefit. If capacity constraints worsen next year, this could cause additional price increases. Additionally, retailers may offer time-of-use pricing schemes whereby customers who shift load to off-peak hours may be able to benefit from reduced prices.