Vir Chahal writes about the New York Independent System Operator (NYISO) change in capacity prices. The 2021 summer NYISO capacity prices saw a 70 percent decline for the New York City (Zone J) locational capacity zone (LCZ) when compared to 2020, with prices clearing at $5.54/kW-month in the summer strip auction versus $18.36/kW-month in the prior summer auction. Concurrently, the Rest of State (ROS) prices increased from $2.71/kW-month to $4.09/kW-month.
The underlying drivers for this change in price were a shift in the locational capacity requirement (LCR), change in total capacity required in-zone despite the LCR shift, and the statewide installed reserve margin (IRM).
Auction Parameter Changes
LCRs represent the amount of in-zone capacity required in any given LCZ. These are set for transmission constrained zones to ensure there is enough local capacity to maintain reliability criteria. A unique capacity price is determined within each LCZ, and this price can be higher, but not lower, than the statewide price. Therefore, the internal capacity requirements within each LCZ, such as Zone J, are a driving factor for capacity prices within that LCZ.
The net cost of new entry (net CONE) is the cost of new entry considering expected revenue from energy and ancillary services. The technology that represents the lowest net CONE within each LCR is used as a reference plant to determine this value (e.g., an H-class simple cycle plant in Zone J). This value is a key parameter in determining the administrative demand curve used in conjuncture with supply bids to set capacity market clearing prices.