Analysis Group Study Evaluates Potential Impacts of Capacity Market Design Changes for Evolving Energy Grid in New England Region
January 17, 2024
Principal Todd Schatzki, Vice President Joseph Cavicchi, and Manager Phillip H. Ross led a study evaluating the benefits and costs of key design changes to the region’s capacity market design in light of evolving demands on New England’s energy grid, including an increasingly diverse mix of clean energy resources and increasing loads due to electrification of heating and transportation.
The study, which was commissioned by ISO New England (ISO-NE), the regional transmission organization (RTO) tasked with running the region’s electric grid, examined two key alternatives to the current forward-annual capacity market, in which capacity is contracted more than three years in advance on an annual basis. First, they evaluated changing auction timing to prompt auctions occurring shortly before the period when capacity is delivered. Second, they evaluated creation of a seasonal market, in place of the current annual market. The authors recommend that the RTO adopt both design changes to account for an increasingly diverse energy resource mix, uncertainty associated with resource development, and evolving seasonal resource adequacy risks.
The study used economic, analytic, and quantitative methods to analyze the benefits and trade-offs of developing prompt and seasonal markets. The authors recommend adopting the prompt-seasonal approach for the 2028–2029 Capacity Commitment Period because, they write, it can “flexibly adjust to changes in resource mix and seasonal reliability risk profiles.” Their findings have important implications for the New England region’s ability to reliably and cost-effectively integrate expanded renewable resources and meet grid demand, particularly in the context of the states’ broader decarbonization goals. As many regions are undertaking similar clean energy transitions, the study addresses important market issues facing electricity system operators throughout the country, many of which are considering similar modifications to their markets.