OREANDA-NEWS.  The Independent System Operator of New York is weighing alternatives to its existing capacity market rules, but a move to a more forward-looking market structure likely will raise costs and could favor new generation at the expense of existing capacity.

New York has a short-term capacity market that allows the grid operator to pay generators for an obligation to sell electricity separately for summer and winter seasons. The operators of neighboring grids, the PJM Interconnection and New England, procure capacity three years ahead of the year-long planning period.

Switching to a model employed by PJM and New England could add as much as \\$207mn/yr in extra costs to New York consumers, according to a report prepared by consultancy Analysis Group, presented today at the capacity market working group meeting in Rensselaer, New York. The report suggests that the current setup works well and should remain in force even though a switch to a more forward-looking model is plausible with sufficient lead time.

Scenarios analyzed by the consultants suggest a wide range of net costs, from savings of \\$105mn/yr to an additional cost of up to \\$270mn/yr. The analysis compared the results of a three-year-forward capacity market model with the present setup for 2020.

A three-year-forward market works better at securing capacity and inviting new entry. But forward market costs are highly sensitive to load forecasts, with asymmetrically higher costs for over-forecasting compared with savings from under-forecasting, the Analysis Group said.

The New York grid's independent market monitor, Potomac Economics, endorsed the conclusion that the short-term capacity market model should not change, according to a presentation by New York market monitoring unit director Pallas LeeVanSchaick.

Major changes in northeast US power markets prompted the evaluation of the capacity market. Environmental regulations are forcing retirements of CO2-intensive generation. More than 44pc of New York City's capacity predates 1970. Nuclear units in the state with 5,579MW of total capacity are facing protracted relicensing battles and competition from gas and renewable units.

The independent system operator instead is likely to focus on fine-tuning the present capacity market rules to provide economic incentives for generators dispatched reliably in periods of extra-high demand in winter and summer seasons.