BOSTON — Capacity markets have brought significant cost savings for customers in the Northeast over the past two decades but now face the critical need to evolve amid rapid load growth and a changing resource mix, according to a group of experts.

“We’re in a moment that requires a significant amount of evolution,” said Liz Delaney, vice president at New Leaf Energy, speaking at the Energy Bar Association’s annual Northeast Chapter meeting on June 18.

All three of the Northeastern RTOs have pursued significant capacity market reforms in recent years; ISO-NE and NYISO are in the midst of significant capacity market overhauls — the Capacity Market Structure Review project for NYISO and the Capacity Auction Reform project for ISO-NE — while FERC approved major resource accreditation changes for PJM in 2024. (See FERC Approves 1st PJM Proposal out of CIFP.)

Since the inception of capacity markets, grid operators frequently have made design changes to reduce volatility and improve price formation and resource accreditation, said Marc Montalvo, CEO of Daymark Energy Advisors.

“I think all of these things are evolutionary and are important, and are a sign of a dynamic learning environment, as opposed to a sign of weakness,” Montalvo said.

However, with every significant change, “there are dollars at play,” Montalvo added. “Politics is just played differently than either engineering or economics, and that’s where we find ourselves now.”

In PJM and MISO, resource retirements and new large loads — including AI data centers — have contributed to major spikes in capacity prices. (See MISO Summer Capacity Prices Shoot to $666.50 in 2025/26 Auction and PJM Capacity Prices Spike 10-fold in 2025/26 Auction.)

While New York and New England have not experienced the same level of large loads seeking to come online, both have ambitious transportation and building electrification goals, which, if successful, would drive significant load growth. The region also could see the addition of smaller-scale data centers. (See Limited Demand for Large-scale Data Centers in New England.)

Data center growth “really puts pressure on every corner of the industry,” said Samuel Newell, principal at the Brattle Group, noting that the recent spike in load growth projections appears to be “much more than our development pipeline, supply chains and transmission planning were ready for.”

There’s immense uncertainty around data center load growth, and it can be difficult to know if proposed load sources are real or speculative, Newell said.

“There’s so many uncertainties with regard to what demand will be, what computational efficiencies will be,” Newell said. “I don’t think it’s realistic to forecast it well.”

While rising capacity prices should increase the incentives for new resources, high costs also can cause political blowback for RTOs, a circumstance experienced recently in PJM.

“That’s real money in residential, commercial and industrial customers’ pockets … and it’s turning out to be a real political problem and flashpoint,” said Walter Graf, chief economist for PJM.

In New England, the capacity market has successfully signaled whether to build new resources and has helped shield customers from risks associated with generation development, said Bruce Anderson, senior vice president at the New England Power Generators Association (NEPGA).

In recent years, the region has seen “historically low clearing prices, reflective of the system at large,” Anderson said. Although ISO-NE anticipates load growth to accelerate over the next 10 years, peak loads in the region have been relatively static over the past decade, in part due to energy efficiency gains and the deployment of rooftop solar.

Anderson said he’s “very hopeful” about the capacity reforms underway at ISO-NE and is particularly interested in the capacity accreditation changes, which should allow for increased “substitutability” between different resource types in the market.

He added that ISO-NE’s proposal to cut the time between capacity auctions and the capacity commitment period (CCP), and split CCPs into summer and winter periods, should help the region cope with increasing winter reliability risks and enable better-informed investment decisions.

While ISO-NE’s CAR project creates short-term market uncertainty, Anderson said he hopes the capacity market that emerges will be able to provide a “period of stability” once finally implemented in the 2028/29 CCP.

“Getting some stability in the market, that really helps in investor confidence and investor decisions,” Anderson said.

He also said NEPGA members have discussed the potential to bring back some version of a price lock for new resources, which may help serve as an alternative to strict reliance on state contracts to bring more resources into the market.

In 2020, FERC ordered ISO-NE to eliminate its allowance of a seven-year price lock for new entrants, a move that was supported at the time by NEPGA. (See FERC Orders End to ISO-NE Capacity Price Locks.)

Other speakers spoke favorably about a seasonal market construct but expressed some skepticism about ISO-NE’s “prompt market” proposal, questioning whether the market will provide enough certainty to attract investment in new resources.

“I’m personally a bit skeptical of the benefits of New England moving from a forward to a prompt structure,” said Montalvo.

Delaney of New Leaf emphasized the importance of providing enough transparency to allow participants to model market outcomes multiple years into the future. She added that creating avenues for bilateral contracting is essential to helping new resources come online.

“We need some level of certainty over a significant portion of the revenues to make the math work,” Delaney said.