The Power of Markets - How the New York ISO's Independent Markets Support the Electric Grid
Every five minutes, 24 hours a day, every day of the year, electricity in New York State is bought and sold through the NYISO markets. Through these markets, recurring competitive auctions select the least-cost set of resources to meet grid demand.
The scheduling process to meet energy needs actually begins with a day-ahead forecast. Each day, we forecast electricity demand for the following day, scheduling suppliers to meet that projected need through a “day-ahead” competitive auction. In real time, we monitor actual electricity use on the grid and leverage “real-time” auctions to true up differences between actual grid conditions and the previous day’s projections.
Other NYISO-administered markets also support resource availability for real-time demand and maintain the reliability of the electric grid. The capacity market provides market signals to encourage generators and other resources needed to meet days of high demand, such as during a hot summer day. Demand Response programs compensate electricity consumers (such as industrial companies or commercial buildings) for reducing their usage during times of high demand. Ancillary Services markets further support specific reliability needs on the grid. For instance, the regulation service market compensates generators for ramping up or down in order to provide a balanced interconnection frequency.
The Value of Markets
There are many benefits to the use of an independent marketplace to run the energy grid. Markets provide price signals that attract investment to the grid where and when it is most needed. For instance, data shows that 80% of all new generation created under our markets was located in the downstate New York area, where demand is highest and prices reflect that.
The competitive auction structure of the NYISO’s markets also encourages generators to minimize cost and maximize efficiency, thus reducing greenhouse gas emissions.
Markets also cultivate innovation through competition, resulting in new technologies and efficiencies, and markets promote new solutions to meet reliability needs, transmission and congestion issues and environmental concerns.
For instance, the NYISO is currently developing a proposal to integrate the “social cost of carbon” emissions into our market structure, which would provide additional incentives for investment in cleaner power generation.
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