BOSTON — Managing the often-at-odds priorities of affordability, reliability and decarbonization will require a delicate balance of innovation, market reforms and stability, industry experts told attendees of the Northeast Energy and Commerce Association’s Power Markets Conference on Jan. 16.
Speakers discussed some of the major changes on the horizon for the region’s wholesale markets as grid operators prepare for significant load growth and an increasingly distributed and intermittent resource mix.
ISO-NE is undergoing a major effort to reform its capacity markets, which includes resource accreditation updates and changes to the timing and format of capacity auctions. FERC accepted similar accreditation changes for NYISO in July, which will take effect in 2026. (See FERC Accepts NYISO Capacity Accreditation Changes, with 1-Year Delay.)
Chris Geissler, director of economic analysis at ISO-NE, said the RTO is trying to design the accreditation methodology so “everyone is essentially selling the same product.”
The proposed accreditation framework is intended to quantify how a resource would perform during the periods with the greatest reliability risks, meaning that assumptions related to the resource mix, outages and demand profile could have major effects on how different resources are valued.
For example, adding wind capacity would improve grid reliability during the periods with high wind, reducing the reliability value of subsequent additions of wind resources, Geissler said.
Meanwhile, energy storage likely will be complementary to weather dependent resources. Increasing the amount of solar or wind power on the system could improve the reliability contributions of energy storage, Geissler noted.
Michael Borgatti, senior vice president of RTO services and regulatory affairs at consulting firm Gabel Associates, said the nearly 10-fold increase in prices in PJM’s most recent capacity auction should serve as “a cautionary story for all other RTOs across the country, including NYISO and ISO-NE.” (See PJM Capacity Prices Spike 10-fold in 2025/26 Auction.)
Capacity prices are “a symptom of how you set the underlying supply and demand fundamentals,” Borgatti said, adding that PJM determined its capacity need on an unprecedented extreme scenario.
“PJM built its capacity model on the backs of Winter Storm Elliott,” Borgatti said. “They wanted to make sure their model reflected the possibility of these big dangerous storms matching up with the highest load.”
Despite the high prices in PJM, uncertainty regarding potential changes to PJM’s capacity market makes it hard for developers to invest in new resources that could help address the lack of capacity, Borgatti said.
New Market Mechanisms
While ISO-NE’s capacity accreditation reforms likely will increase compensation for dispatchable resources that provide winter reliability benefits, ISO-NE has indicated new market mechanisms may be needed to support resources that are called upon only in extreme situations. (See ISO-NE: New Mechanisms May be Needed to Ensure Future Grid Reliability.)
The RTO’s Economic Planning for the Clean Energy Transition (EPCET) study, published in October, found a major need for dispatchable resources to meet a higher and increasingly variable winter peak. The resources, ISO-NE noted, “may only run once every few years.” (See ISO-NE Study Lays Out Challenges of Deep Decarbonization.)
The EPCET study also found ISO-NE’s energy market likely will decrease in value as renewables supported by power purchase agreements (PPAs) come online, with the capacity market and PPAs increasing in importance. The RTO also outlined concerns that the current PPA model will struggle to support new resources starting in the mid-2030s.
“We’re going to need steel in the ground,” said Jeff Turcotte, assistant vice president of government affairs at the Electric Power Supply Association. “Markets are going to have to continue to signal that investment.”
“If we are thinking about big ideas and big investments … some of those answers are already out there.” Turcotte said, pointing to the Pathways Study, which Analysis Group conducted for ISO-NE in 2022.
The Pathways Study considered several strategies for decarbonizing the grid to meet state goals and ultimately concluded that net carbon pricing would be the most cost-effective way to reduce power sector emissions in the region. (See Draft Study Weighs Tradeoffs of CO2 Pricing, FCEM for ISO-NE.)
However, adopting net carbon pricing would require buy-in from all six New England states, which so far has prevented further development of this proposal.
“ISO-NE has made it very clear that it thinks net carbon pricing is the most efficient way to decarbonize the grid,” said Ashley Gagnon, senior director of Massachusetts’ office of Federal and Regional Energy Affairs. “From Massachusetts’ perspective, we’re always interested in having conversations about new market mechanisms to in connection with the future grid.”
Cutler Cleveland, associate director of the Institute for Global Sustainability at Boston University, emphasized the importance of rapid decarbonization.
“It’s quite clear that we’re not moving quite as fast as we need to avoid the wheels coming off the bus,” Cleveland said, outlining the wide range of severe consequences climate change is projected to have on human mortality, disease vectors, air and water quality, and labor productivity.
“Business as usual with decisions driven only by market forces will not work,” he said, adding opposition from politicians and the public to climate policies — including carbon pricing — “is a real problem.”
Demand Response and Load Flexibility
Another major topic of the conference was how the region can unlock savings by shifting demand away from peak hours as the electrification of transportation and heating accelerates.
The costs savings of reducing the region’s peak load could be massive: ISO-NE’s 2050 Transmission Study found that a 10% reduction in the projected 2050 peak could save nearly $10 billion. (See ISO-NE Prices Transmission Upgrades Needed by 2050: up to $26B.)
Across the region, utilities are working on advanced metering infrastructure (AMI), which should enable incentives for residential customers to decrease peak demand. In Massachusetts, the utilities plan to complete their rollout of AMI by 2030, which likely will be followed by some form of time-varying rates. (See Mass. Electricity Rates Working Group Issues Recommendations.)
While there was some disagreement between speakers about whether policymakers should focus on automating demand response or rely on real-time pricing to incentivize behavioral changes, most agreed automating demand response for willing customers will be an important piece of the puzzle.
George Twigg, executive director of the New England Conference of Public Utilities Commissioners (NECPUC), said residential demand response likely needs to be automated to reach a wide scale. He noted that the commercial and industrial sectors — despite the attention given to the residential sector — likely hold the greatest potential for demand response.
Austin Dawson, deputy director of energy supply and rates at the Massachusetts Department of Energy Resources, said the state likely will need “some significant reforms” to rate design to make the most of advanced metering infrastructure, adding that long-term recommendations from the state’s Interagency Rates Working Group should be released later in January.
While electric vehicle load probably is the easiest to shift, “I don’t think we can write off heating load as a flexible end use,” Dawson noted.
He emphasized the importance of research and pilot programs to prepare for the transition to a winter-peaking system, which ISO-NE expects to occur in the mid-2030s.
