Guidance for solar developers participating in MISO seasonal capacity auctions

The focus is shifting from wind to solar at Midcontinent Independent System Operator (MISO). This shift means MISO must guide solar asset owners, who could be the majority of new market participants in the next 3-5 years. MISO is moving from an annual capacity auction to seasonal auctions starting next April. All these changes are too much for solar developers. Hence they need a crash course in MISO capacity and energy market concepts. This blog attempts to highlight three common questions from a solar developer’s perspective.

Starting with registration as a generation resource to participate in the MISO capacity market, a solar developer should brush up on the timeline for a capacity auction, including understanding the steps to take if their solar project’s Commercial Operation Date (COD) is closer to or later than the MISO auction in April. Solar owners must pay attention to static and real-time input data for solar forecasting and understand MISO market settlement charges, such as Excessive/Deficient Energy Deployment Charges.

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Solar is poised to take a front seat compared to wind in the MISO capacity, energy, and ancillary services market. From MISO’s August Market and Operations report, we know only 4,000 MW of solar is registered (slide 45 here). Compared with the 30,000 MW of wind registered, that is not much. But from the latest requests in the recently-closed 2022 generator interconnection queue at MISO, there are 469 solar requests totaling 83,000 MW. Wind, on the other hand, has only 66 requests totaling 14,000 MW. MISO expects 15% of requests on average to drop out of the queue before the start of study phase 1. Even with that modest drop, there is no doubt that the future of renewables integration at MISO is solar.

Increased emphasis on solar compared to wind translates into MISO staff updating their market practices documents for solar resources. During the next four years (2023-2026), MISO would be interconnecting an estimated 35,000-55,000 MW of solar, doubling the total renewable energy share from the current 15% to 30% by the 2026-2027 timeframe.

Market registration

Transmission-connected solar must be registered as a generation resource because the new Schedule 53 resources definition excludes dispatchable intermittent resources, which solar registered as previously. MISO continues to work with stakeholders on non-thermal resources and their capacity accreditation but, in the meantime, the Schedule 53 resource definition applies mostly to thermal resources.

After an interconnection agreement is executed, resource owners must start the market registration process to participate in MISO markets.

ICAP Deferral process

The maximum nameplate capacity of any resource is converted into Installed Capacity (ICAP) for capacity market purposes. After accounting for forced outages, that ICAP value turns into an Unforced Capacity (UCAP) value. For example, if ICAP = 100 MW and the forced outage rate of the unit is 5%, then the UCAP value is 95 MW (100 times (1-forced outage rate)).

These UCAP values are converted to Zonal Resource Credits (ZRCs) in MISO capacity auctions. ZRCs can be traded among market participants in the MISO tool used for capacity auction called Module E Capacity Tracking (MECT).

But for new solar resources that are unavailable for Commercial Operation Date (COD) before or after the auction starts in April (MISO plans to run one auction for all four seasons), they must go through a process called “ICAP deferral” in the MISO capacity auction timeline.

Typically, resource owners must declare their company’s intention to leverage this ICAP deferral by Feb 15. This intention is in the form of a letter from an officer of the company. MISO is updating its Business Practices Manual for Resource Adequacy with a new language (slide 4 here) that addresses stakeholder concerns.

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MISO control room. Credit: MISO Energy

Solar forecasting

To participate in the MISO energy market (day ahead and in real-time), any renewable resource must be registered as a generation resource. Hence renewables must provide a forecast to the MISO operator because of the variability of their renewable production. During market registration, MISO requires both static input data and real-time input data.

Static data for solar includes the geographical location of the resource (latitude and longitude), physical characteristics of the unit (installed capacity and the number of photovoltaic cells), and operational characteristics (tilt and azimuth positions of the solar panels, tracking capability, and the commercial operation date). Real-time input data is comprised of the outage and derate information, unit testing dates, and a unit’s commercial operation date. Without these details, MISO could end up with inaccurate forecasts.

These inaccurate forecasts could result in excessive energy or deficient energy charges called imbalance charges for solar.

Imbalance Charges – Hourly Excessive/Deficient Energy Deployment Charge

MISO has many charges on market participants for both real-time and day-ahead energy markets. In addition to that, MISO has capacity market charges and financial transmission rights charges. All these market settlement charges are explained in Market Settlements 5 Minute Calculation Guide, available for market participants when they download the latest version of the Market Settlements Business Practices Manual.

Because solar output can vary due to cloud cover and other weather-related conditions in any given hour, there could be instances where solar is underproducing compared to the forecasted value (MISO or Asset Owner forecast), which leads to a deficient energy situation. Or solar is overproducing compared to the forecasted value (the forecast assumed clouds, but they didn’t show up), which leads to an excessive energy situation. In both these excessive/deficient conditions, solar owners are not penalized for every MW deviation. But they are assessed an Excessive/Deficient Energy Deployment Charge per hour when the deviations are outside the tolerance band.

There are thresholds defined for both minimum and maximum in this tolerance band. The minimum tolerance band threshold is 6 MW, meaning if the solar deviates by 5 MW from its forecast, it does not incur deficient energy charges. And the max tolerance band threshold is 30 MW, meaning if solar overproduces by 31 MW, it incurs excessive energy charges. The market participants cannot dispute these pre-determined limits for tolerances, which depend on the maximum output of the solar resource.

And this charge is applied when solar deviates from MISO operator instructions in four or more consecutive 5-minute Dispatch Intervals within an Hour.

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Next Steps

Solar is going to be prominent in MISO markets in the future. For solar integration, many market concepts that applied to wind in the past must be refreshed. Future topics in this blog series include reliability and economic curtailments of the solar, the role of MISO as the balancing authority and the local transmission utility as the local balancing authority, and additional MISO seasonal capacity auction concepts such as Replacement ZRCs.

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Author: Rao Konidena