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Published: 7/27/2020. Updated: 8/13/2020

NERC approved The bids of the Capacity auction participants and the auction maximum price setting methodology


National Energy Regulatory Council (NERC), in order to clearly regulate how the maximum bid prices for persons operating existing (existing generators) and planned (new generators) facilities ensuring capacity are set, approved The bids of the Capacity auction participants and the auction maximum price setting methodology (available here).

Substantive provisions:

When setting maximum prices, the assessment of new entrant’s electricity generation, energy storage facilities in the electrical system, electricity demand for the facilities of independent aggregator will be performed in the following stages: the reference technology is selected; the characteristics of the selected reference technology are described; total costs of the reference technology are determined; net costs of the new entrant are determined; maximum price caps of bids from persons operating existing and planned capacity ensuring facilities are set.

Reference technologies and their costs levels, other indicators/parameters will be assessed based on the experience of other countries, the latest information from experts, competent authorities and interested parties, research and scientific literature, analyses performed by consultants, etc.

Maximum price cap for new entrants will be calculated by adjusting (increasing) costs of the reference technology by a 1.5 coefficient which is related to the uncertainties of the projected expenditures and receivable incomes. The coefficient was chosen based on the practice of other countries (Ireland, Poland).

Maximum price cap for entrants operating existing facilities will be set by a 0.6 coefficient by adjusting (reducing) maximum price cap of new entrants. This coefficient has been chosen also taking into account the fact that some of the investments of the existing generators have already returned (based on the practice of Poland) and aiming at maximum economic efficiency and minimum financial burden for electricity consumers, as the Capacity mechanism should not be the only source of the costs recovery for the persons who are going to participate in the Capacity mechanism, they are encouraged to participate actively in the market and thus to get additional income.