Clearing prices in the upcoming New York ISO installed capacity auction are likely to be firm to higher from levels notched in 2016, according to market analysts.
For the summer strip 2017 auction, analysts from PA Consulting are calling for a price of about $11.71/kW-month for New York City, up from $10.99/kW-month in 2016, and a price near $10.78/kW-month for the Lower Hudson Valley's G-J locality, compared to a price of $8.25/kW-month in 2016, which was its lowest point since 2009.
"Overall, we see the following changes: in G-J, the higher demand curve and higher [locational capacity requirement] value uplifting pricing, which more than offset the lower load forecast. However, in Zone J [New York City] the lower load forecast is only partially offset by the impact of the higher LCR value (81.5%, from 80.5% last year)," Ethan Paterno, an energy markets expert at PA Consulting, said in an email to S&P Global Market Intelligence.
The locational capacity requirement, or LCR, represents the amount of capacity that must be procured from resources located within each locality and is highly sensitive to changes in supply.
According to the PA Consulting analysts, clearing prices in the rest-of-state, or RoS, region, are likely to come in around $5.15/kW-month in the 2017 summer strip auction, compared to a price of $3.62/kW-month in the 2016 auction, PA Consulting said.
In New York the summer strip auction, or summer capability period auction, is held at least 30 days prior to the capability period, which stretches from May through October for the summer capability period and November through April for the winter capability period.
Some analysts believe the announced retirement of Entergy Corp.'s Indian Point nuclear units will work to support New York capacity auction prices in the Lower Hudson Valley zone, although two new combined-cycle natural gas plants in the region, transmission upgrades and updated forecasts for lower demand are likely to offset some of the price uplift.
Analysts from ICF International are more bullish and expect the retirement of Indian Point could have "the potential to jolt the New York capacity market" in the longer-term.
By 2021, absent any new capacity additions other than Advanced Power Services (NA) Inc.'s Cricket Valley and Competitive Power Ventures Holdings LLC's CPV Valley Energy Center "capacity prices in the Lower Hudson Valley region could increase to $135/kW-year or more ($15/kW-month summer), a sharp increase from the 2016 calendar year spot value of $75/kW-year," according to a March 2 paper from ICF. "While certain factors appear known, such as the additions of the two combined-cycle plants, much uncertainty remains."
"By 2021, the [Lower Hudson Valley] demand curve is projected to be 34% higher and steeper than 2016, due to the outcome of the latest demand curve reset, projected increases in the net cost of new entry (net CONE), and modest load growth," ICF wrote.
Macquarie analysts, who are projecting relatively flat auction clearing prices year over year in New York, also pointed to the expected retirement of several upstate nuclear reactors as supportive for capacity prices across the state in the longer term. However, assuming the state's zero emissions credits, or ZECs, program is upheld by the court, these nuclear plants in the state are likely to continue to operate.
The ZECs program is designed to keep the FitzPatrick plant and two other nuclear plants in New York financially viable. Entergy initially planned to close the James A. FitzPatrick nuclear unit in January of this year due to the plethora of cheaper natural gas-fired generation; however, a week after New York regulators approved the ZEC program, it was announced that Exelon Corp. would buy the facility.
In October 2016, a coalition of power generators filed suit in federal court alleging that the New York State Public Service Commission unlawfully approved the nuclear subsidies.
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