Good News for Electric Prices: Capacity Costs Decreasing for Future Supply Periods

When purchasing electricity supply, included in the price are various components that satisfy state policies—such as the state-mandated renewable energy portfolio standard—as well as ensure the reliability of New England’s power system. Capacity is a component of reliability and represents the payment made to generators to make certain that there will be enough power to meet the maximum demand.

Since new power plants take time to plan and build, each year the electric grid operator, ISO New England, runs a capacity auction for the June to May period three years in advance. Forward capacity prices provide a signal, as well as a revenue stream, to power generators that may only be able provide power when market prices hit a certain level but are still required to provide power when customer demand hits higher levels. On February 14, ISO New England announced the results from its 12th Forward Capacity Auction (FCA) for the period of June 2021 to May 2022, which resulted in a price of $4.63/KW. For a typical customer, capacity during this period will add $0.01/KWh, which is down 13% from the previous period of June 2020 to May 2021.

The graphic below illustrates the impact on Connecticut customers. As the graph shows, capacity charges decrease for future supply periods, so longer-term supply contracts should feature lower prices. To learn how PowerOptions can help your organization bring the benefit of these lower prices forward, call Derek Howell at 860-205-3863.

Impact of Capacity Charges on Electricity Prices: Connecticut

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