Dive Brief:

The head of ISO New England acknowledged it is "challenging" to balance the lowest-cost objectives of wholesale energy markets with state policies aimed at integrating more renewables, but in a letter to lawmakers, he said the grid operator remains committed to both.

ISO New England President and CEO Gordon van Welie on Nov. 21 responded in detail to a letter from eight of the region's U.S. senators, including presidential candidates Bernie Sanders and Elizabeth Warren, pressing for faster action on decarbonization.

In the letter, van Welie addressed several lawmaker concerns, including that the ISO's Competitive Auctions with Sponsored Policy Resources (CASPR) is slowing renewables integration. "We agree," he wrote, and pressed for the region to adopt a carbon price to speed the clean energy transition.

Dive Insight:

CASPR was designed to prevent state subsidized resources from depressing capacity prices, but lawmakers have complained the program forces state-sponsored renewable energy to "wait for incumbent fossil fuel generators to retire before these clean resources can enter the capacity market."

On that point, van Welie concurred. "We agree – CASPR is a second-best solution and have long advocated that the region instead adopt a carbon price."

Placing a price on carbon would be a "simple and easily-implemented mechanism" to speed renewables onto the grid, he wrote. But the New England states have made clear "they are not in favor of pricing carbon emissions within the ISO-administered, FERC-regulated wholesale electricity markets," van Welie added.

Vermont lawmakers dropped plans to pursue a carbon price this year, though the issue could return in 2020.

The CASPR program was created as an alternative to a carbon price, according to the ISO chief. The grid operator worked with stakeholders to accommodate the entry of state-sponsored resources in the forward capacity market "while ensuring that capacity prices still incentivize investments needed to maintain reliability."

But van Welie also said CASPR "was intended to work over time," as it allows state-sponsored resources that are unable to clear the ISO's primary auction to trade with a capacity resource seeking to retire. "Trades will depend on the timing and build-up of the economic incentives for buyers and sellers," he wrote.

"We believe that the CASPR design, while a second-best alternative to carbon pricing, demonstrates both ISO New England's consideration of the region's environmental and climate goals as well as our adherence to our mission to ensure reliability through a wholesale market structure," he said.

The president and CEO addressed other concerns as well. The Inventoried Energy Program (IEP), which supports plants that have on-site fuel supplies such as oil, coal or liquefied natural gas, "is a temporary program," he reminded lawmakers, that applies to the winters of 2023-2024 and 2024-2025 until a market-based approach to energy security is implemented.

"The IEP does not take the place of, delay, or stand in opposition to long-term, market-based changes to help states meet their public policy goals while maintaining reliability," van Welie said.

Eight lawmakers signed on to a Nov. 18 letter critical of ISO New England's efforts: Sens. Sheldon Whitehouse, D-R.I., Jack Reed, D-R.I, Richard Blumenthal, D-Conn., Ed Markey, D-Mass., Chris Murphy, D-Conn., Angus King, I-Maine, Bernie Sanders, I-Vt. and Elizabeth Warren, D-Mass.

"ISO-NE appears to be pursuing a patchwork of market reforms aimed at preserving the status quo of a fossil fuel-centered resource mix," they wrote.