MISO's capacity auction

This ICF International white paper examines how the Midcontinent Independent System Operator's (MISO) 2015–2016 capacity auction resulted in some significant shifts in pricing. Key discussion topics include:

• MISO capacity market background
• 2015–2016 auction results
• Key price drivers
• Looking ahead

Substantially lower clearing prices occurred across almost all of the system's nine zones, with the most notable exception of Zone 4 that saw a dramatic tenfold year-over-year increase. In the most basic terms, these results were driven by relatively simple factors: higher opportunity cost-based bids in Zone 4, lower bids elsewhere, and more uncontracted competitive retail load. But at a more detailed level, several related dynamics underlaid bidding behavior.

Going into the next auction, several factors will tighten the supply and demand balance. However, given inefficiencies in the current MISO capacity market structure and because the majority of the capacity in MISO already is contracted, we do not expect a major recovery in capacity prices. This combination of factors may require eventual reform in the capacity market. In the interim, state intervention could translate into more opportunity for new assets to enter into power purchase agreements (PPA) with utilities.