ISO-NE recommends capacity market reforms

ISO New England is recommending a new capacity market structure to better ensure power system reliability and cost-efficiency as the region’s resource mix evolves.

For the last 18 years, the ISO has administered a Forward Capacity Market, using annual auctions to secure commitments from energy resources three years in advance. The proposed update instead follows a “prompt/seasonal” model.

“Prompt” means the capacity auction would take place much closer to the delivery period. As a result, the auctions would be based on more accurate information about the expected demand for electricity and resources’ ability to meet that demand during the most stressed system conditions. A prompt auction would better accommodate the development timelines of diverse resources, and reduce risk of resources securing capacity supply obligations but being unable to deliver.

The “seasonal” element involves procuring capacity in a way that better addresses the distinct reliability challenges of winter and summer, as well as variations in resource performance from season to season. Winter risks are expected to increase as weather becomes more extreme and unpredictable, and as public policies guide the region toward wider adoption of weather-dependent clean energy resources and the electrification of heating and transportation.

Before making its recommendation, the ISO conducted discussions with stakeholders in the New England Power Pool (NEPOOL) Markets Committee, as well as commissioning a study by Analysis Group that also recommended a prompt/seasonal approach.

The proposed reforms would take effect beginning with the 2028/2029 capacity commitment period. Under the current market structure, commitments for that period would be secured in the 19th Forward Capacity Auction (FCA 19), originally scheduled for 2025.

However, the ISO earlier this year received approval from the Federal Energy Regulatory Commission (FERC) to delay FCA 19 until 2026. The delay will allow for completion of the Resource Capacity Accreditation project, which aims to more accurately measure resources’ unique contributions to system reliability.

If it pursues a prompt/seasonal capacity market, the ISO would seek FERC approval to delay the auction further, until 2028, in order to have time to develop the market rules to implement a new capacity market structure. If the new rules are approved by FERC, the first prompt capacity auction would be held in early 2028 for the 2028/2029 commitment period. A NEPOOL Participants Committee vote on whether to begin designing the prompt/seasonal market is planned for April.

Meanwhile, FCA 18 was held on February 5 to secure resource commitments for 2027/2028.

Industry News & Developments
capacity, energy adequacy, forward capacity market, market development, wholesale markets