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My first project as an investment banker was refinancing the turbine barges in Brooklyn briefly mentioned at the beginning the article. The article should have

My first project as an investment banker was refinancing the turbine barges in Brooklyn briefly mentioned at the beginning the article. The article should have gone into capacity auctions. It's an interesting process; generators participate in Dutch auctions to win contracts to be ready to provide a certain number of MWs onto the grid. The entire winning side of the market gets paid at the market-clearing price when the ISO gets enough MWs allocated. The capacity is auctioned off over three time horizons: a "strip" auction for the six-month winter period and the six-month summer period that happens about a quarter before the period starts; a monthly auction that clears a few months out; and a monthly auction that clears on the eve of the start of the month. I was initially surprised to learn that clearing bidders are not even paid to generate; they're paid to be ready to generate, which means they have to stay inspection-compliant and periodically fire up the plant to ensure everything's in good working order. If they generate, they get paid for the MWs that go onto the grid. For an asset like the Brooklyn barges, they might get spun up 20 days a year on a hot year, and actually put meaningful MW's on the grid for 10 of those days. All in July/August when it's hot out and people are blasting AC. The capacity market is highly seasonal. The NYISO website has lots of data if you want to learn more: http://www.nyiso.com/public/markets_operations/market_data/icap/index.jsp http://www.nyiso.com/public/markets_operations/market_data/i...

deleted 10y ago
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akiselev 10y ago
Its not that surprising when you account for the fact that utilities are government granted monopolies. In California, at least, the deal is that investors get to be the only game in town and in return they guarantee that the infrastructure will not fail. Depending on the size of the market, a power outage might cost the utility tens or hundreds of millions of dollars in fines, all but wiping out any profit for the year. AFAIK there are also some pretty hefty fines when the company fails to repair infrastructure fast enough, like after a car accident damages the power lines. With such crippling fines, its cheaper for utilities to build a huge natural gas peaker plant every year than to get penalized for failing to provide service.
debacle 10y ago
> I was initially surprised to learn that clearing bidders are not even paid to generate; they're paid to be ready to generate, It is, however, a very serious commitment. If you fail in your generation requirement you can be fined significantly or excluded from future auctions.
appleiigs 10y ago
I started reading the article specifically because I thought it was going to cover the capacity market structure. My home province (Alberta) has recently announced it is moving from energy-only market to a capacity market. https://www.aeso.ca/market/capacity-market-transition/ https://www.aeso.ca/market/capacity-market-transition/

deleted 10y ago

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akiselev 10y ago

Its not that surprising when you account for the fact that utilities are government granted monopolies. In California, at least, the deal is that investors get to be the only game in town and in return they guarantee that the infrastructure will not fail. Depending on the size of the market, a power outage might cost the utility tens or hundreds of millions of dollars in fines, all but wiping out any profit for the year. AFAIK there are also some pretty hefty fines when the company fails to repair infrastructure fast enough, like after a car accident damages the power lines. With such crippling fines, its cheaper for utilities to build a huge natural gas peaker plant every year than to get penalized for failing to provide service.

debacle 10y ago

> I was initially surprised to learn that clearing bidders are not even paid to generate; they're paid to be ready to generate, It is, however, a very serious commitment. If you fail in your generation requirement you can be fined significantly or excluded from future auctions.

appleiigs 10y ago

I started reading the article specifically because I thought it was going to cover the capacity market structure. My home province (Alberta) has recently announced it is moving from energy-only market to a capacity market. https://www.aeso.ca/market/capacity-market-transition/ https://www.aeso.ca/market/capacity-market-transition/