ISO New England (ISO-NE) serves more than 15 million people in the northeastern U.S., including those in Maine, New Hampshire, Vermont, Massachusetts, Connecticut, and Rhode Island. As a non-profit grid operator, ISO-NE is responsible for coordinating the reliability of the electricity transmission system within its service territory, balancing power supply with demand, and operating the ISO-NE Forward Capacity Market.
Learn more in our blog post, “What Is a Capacity Market?”
One of ISO-NE’s key functions is the operation of a Forward Capacity Market (FCM), the long-term wholesale electricity market that maintains system reliability by ensuring the region has enough electricity capacity to meet future demand.
In this blog post, we’ll explore how the ISO-NE Forward Capacity Market works and why it’s so important to ensuring long-term resource adequacy.
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How the ISO-NE Forward Capacity Market works
Each year, ISO-NE conducts a Forward Capacity Auction (FCA) to secure local and systemwide resources three years in advance of when they will be provided. During the 2024 auction, for example, market participants made capacity supply obligations (CSO) for the operating period that runs from June 1, 2027, through May 31, 2028.
The price of electricity during these competitive auctions is largely driven by the availability of generation and demand-reducing resources. One of the unique features of ISO-NE’s FCM is that it encourages energy efficiency and demand response programs to participate on equal footing with traditional power plants. FCA 18, held on Feb. 5, 2024, saw more than 8% (2,614 MW) of all obligations come from demand response programs and aggregated distributed energy resources, including residential solar panels and batteries.
The ISO-NE forward capacity market also has a mechanism to enable the participation of renewable energy facilities. FCA 18 derived 6% (1,800 MW) of its cleared capacity from energy storage projects and 4% (1,250 MW) from wind and solar resources.
Market participants that clear, or win, the auction are those with the lowest-priced offers. The payments they receive for their commitment are designed to encourage investments in new generation resources and technologies as well as incentivize practices that optimize the performance of existing facilities.
Substitution auction
The primary FCA is immediately followed by a substitution auction, which allows market participants to adjust their capacity obligations due to changes in resource availability, such as the retirement of resources, before the commitment period begins. It also allows resources that can increase capacity to fill in the reductions.
Reconfiguration auctions
ISO-NE also conducts Annual Reconfiguration Auctions (ARAs) and Monthly Reconfiguration Auctions (MRAs), which, like the substitution auction, allow FCA auction winners to revise their CSOs by acquiring, increasing, or reducing some or all of their commitment.
Where the substitution auction happens immediately following the FCA and accommodates short-term changes, ARAs and MRAs occur periodically prior to the delivery year as part of the longer-term process of maintaining balance and reliability. ARAs and MRAs also allow ISO-NE to obtain or shed capacity based on evolving system conditions or capacity requirements.
Finally, ISO-NE offers CSO bilateral periods that enable FCA winners to transfer their capacity supply commitments through bilateral contracts.
Optimize your ISO-NE capacity market participation
PCI Energy Solutions offers a range of powerful tools for optimizing your participation in the ISO-NE capacity market, as well as managing the resulting settlements. Contact us to learn more.
