How Will MOPR’s departure affect the ISO-NE market?
The Minimum Offer Price Rule (MOPR) exists to prohibit new capacity resources from offering into the market below their true, i.e. unsubsidized, costs.
MOPR has garnered its share of controversy since it was enacted a decade ago. The rule was introduced to address the concern about “buyer-side market power.” The concern is that an entity on the load side may have an incentive to offer supply into the capacity market at below-market prices in order to depress clearing prices, thus reducing capacity costs. This may degrade the economics for merchant players to the point where new capacity cannot be attracted when needed and existing resources that are needed for reliability may exit the market prematurely.
States in New England have essentially argued in recent years that MOPR infringes on their rights to determine their generation fuel mixes and unnecessarily keeps renewable resources from clearing the capacity market, requiring consumers to pay twice for capacity–once through a state procurement and a second time to purchase capacity to meet ISO-NE capacity requirements, which the state-procured resources cannot meet due to the MOPR.
In an interview on April 5, 2021, FERC Chairman Richard Glick sided with the states when he noted, “FERC has a responsibility under the Federal Power Act, essentially, to defer to the states, in terms of state decisions about what the generation resource mix should be like. But instead, we’ve implemented these MOPRs, at least in the three Eastern RTOs that have mandatory capacity markets, in a matter that really attempts to block the state clean energy policies or state energy policies in general.”
The issues at stake with MOPR are not going to be solved overnight but ISO-NE has started working on changes this month (June 2021). As part of this effort, ISO-NE intends to eliminate MOPR with Forward Capacity Auction 17 (2026/27 commitment period).
While the elimination of MOPR will help renewable resources to clear the capacity market and earn capacity revenues, without accompanying changes to address the price depressing effect of allowing resources to clear at prices below their true costs, the expectation is that capacity prices will plummet.
With a few thousand MWs of state-procured off-shore wind already on the books, and thousands of MWs yet to come, it is reasonable to expect these MWs will start showing up in Forward Capacity Auctions once the MOPR has been eliminated. That said, a set of contested changes pending at FERC could facilitate off-shore wind’s entry into the market a bit earlier if FERC sides with NEPOOL stakeholders over ISO-NE.
In any case, ISO-NE does feel it is important to make accompanying changes that are geared toward maintaining competitive pricing in the capacity market when MOPR goes away.