Capacity markets are a mechanism commonly used by Independent System Operators (ISOs) and Regional Transmission Organization (RTOs) to ensure they have sufficient generation to balance supply and demand during future peak periods. Power generators (both existing and planned) participating in capacity markets make a commitment to deliver energy when called up at a future point in time. In turn they receive a capacity payment, regardless of whether they were called up (similar to an insurance premium). In the US, capacity markets are used in ISO-NE, NYISO, PJM and MISO. CAISO and SPP impose resource adequacy (RA) requirements on Load Serving Entities (LSEs), but those are satisfied via bilateral contracts. ERCOT is unique in the US in that it does not utilize a capacity market or impose RA requirements, and instead operates an “energy-only” market.

In general, renewable energy and storage assets are able to participate in capacity markets. This provides additional revenue for assets owners, while also providing a valuable service to grid operators. A key feature of capacity market participation here is the “capacity accreditation” process, in which ISO/RTOs determine how many MW of capacity to ascribe to a given project. Historically this accreditation was based on measures such as Installed Capacity (ICAP, essentially the nameplate MW amount) or Unforced Capacity (UCAP, essentially ICAP adjusted for availability). In recent years, grid operators have started to turn to more sophisticated modeling techniques for capacity accreditation, such as Effective Load Carrying Capacity (ELCC) or Marginal Reliability Impact (MRI). Understanding the specifics of how accreditation will be applied to your solar, wind, or storage project is key for properly managing your capacity market participation.

The SYSO team has decades of experience working in capacity markets in the US which we bring to bear for our customers and partners. Below are some insights and observations for each.

ISO-NE – The Forward Capacity Market (FCM) is used to secure capacity on a 3-year forward basis. Projects qualify for the Forward Capacity Auction (FCA) via the Show of Interest (SOI) process, approximately a year before the FCA. Qualifying projects must receive Capacity Network Resource Capability (CNRC) values, also known as capacity rights. Projects that clear the FCA secure a Capacity Supply Obligation (CSO) for the Capacity Commitment Period (CCP, 6/1-5/31 each year) starting 3-years later. Projects that need to adjust their CSO can do so via bilateral contracts, or by participating in an Annual Reconfiguration Auction (ARA) or Monthly Reconfiguration Auction (MRA). Projects with CSO are expected to be able to deliver energy to the grid during scarcity conditions, via ISO-NE’s Pay-for-Performance (PFP) mechanism.

PJM – Similar to the FCM in ISO-NE, PJM’s Reliability Price Model (RPM) is a 3-year forward market. A Base Residual Auction (BRA) is held 3-years in advance (though this has often been delayed in recent years) of a Delivery Year (DY, 6/1 – 5/31). Generators must secure Capacity Interconnection Rights (CIRs) in order to deliver capacity to the RPM market. Projects that need to adjust their capacity obligation can do so via bilateral contracts, or by participating in one of several Incremental Auctions (IA). Projects with capacity are expected to be able to deliver energy to the grid during Performance Assessment Intervals (PAI), via PJM’s Capacity Performance (CP) mechanism.

NYISO – Unlike PJM and ISO-NE, NYSIO’s Installed Capacity (ICAP) market uses a “prompt” auction structure conducted a few months before the start of a six-month Capability Period (5/1 – 10/31 for the Summer Capability Period, and 11/1 – 4/30 for the Winter Capability Period). To participate in the ICAP market, projects typically need to secure Capacity Resource Interconnection Service (CRIS) rights during the interconnection process. Projects can secure and adjust capacity obligations through Capability Period Auctions (also known as “Strip Auctions”) covering an entire 6-month Capability Period, Monthly Auctions, or Spot Market Auctions.

MISO – Similar to NYISO, MISO manages resource adequacy through a prompt mechanism called the Planning Resource Auction (PRA), conducted a few months before the start of a Planning Year (PY, 6/1 – 5/31). The 2023/24 PRA was the first auction conducted with a seasonal construct (summer, fall, winter and spring periods). Accredited renewable and storage projects receive a Seasonal Accredited Capacity (SAC) rating, which can be converted to Zonal Resource Credits (ZRC) and sold in the PRA or bilaterally. In order to convert SAC to ZRC, projects must either obtain Network Resource Interconnection Service (NRIS) rights in the interconnection process, or secure firm transmission service through either Point-to-Point (PTP) transmission service or Network Integration Transmission Service (NITS).