Podcast Ep. 34: How the Capacity Market Supports Electric System Reliability
Our mission at the NYISO is to ensure power system reliability and competitive markets for New York in a clean-energy future, and to work with all stakeholders to build the cleanest, most reliable electric system in the nation.
In keeping with our mission, we operate a capacity market to meet resource adequacy requirements and serve consumer demand. The capacity market acts as a transparent and cost-effective mechanism to avoid the danger of service interruptions and outages.
As older resources retire and new resources transform the way the system responds, capacity markets have become even more important to preserving system reliability. However, not every region in the U.S. has a capacity market to support reliability and resource adequacy. For example, Texas and California do not operate capacity markets.
The Capacity Market’s demand curve reset process
In New York, the inputs that factor into the setting of capacity market prices are developed in a process known as the “demand curve reset.” In this episode of the Power Trends podcast, Shaun Johnson, Director of Market Design, explains how the process works.
“The first thing we do is focus on proven technologies that meet system needs. We're trying to meet reliability for consumers at the lowest possible cost.”
Referred to as “proxy units,” these technologies must be capable of responding to peak demand conditions and while meeting environmental and other regulatory requirements to operate in New York. Johnson explains the difficulty in transitioning from a generation fleet with one set of reliability attributes to one that is more intermittent, and weather dependent.
The demand curve process assesses the cost to build and maintain capacity supply resources in order to be available when needed. That includes costs for equipment, construction, and financing, among others.
Johnson describes the capacity market simply, “The capacity market is getting commitments from suppliers to help us meet reliability requirements and reduce the chances of the outages, even if they're not operating those facilities frequently.”
Listen now to learn more about the capacity market and the demand curve reset.