The Forward Capacity Market (FCM) is a long-term wholesale electricity market that assures resource adequacy, locally and systemwide. The market is designed to promote economic investment in supply and demand resources where they are needed most. Capacity resources may be new or existing resources, and include supply from generators, import capacity, or demand resources. (Demand resources reduce electricity consumption.)
To purchase enough qualified resources to satisfy the region’s future electricity needs and allow enough time to construct new capacity resources, Forward Capacity Auctions (FCAs) are held each year approximately three years in advance of when the capacity resources must provide service. That delivery period is called the capacity commitment period (CCP). Capacity resources compete in the annual FCA to obtain a commitment to supply capacity in three years’ time. This commitment is called a capacity supply obligation (CSO). Suppliers with the lowest-priced offers clear the auction and receive capacity payments based on the auction clearing price—these payments are in addition to what resources receive in the energy and reserve markets. In exchange for capacity payments, the resources have an obligation to be ready to run when called on.
Because prices in the energy and reserve markets are more volatile and change as grid conditions change (for example, as fuel prices, the fuel mix, and technology changes, or as new infrastructure is built that may alter prices in some locations), resources rely on the FCM for a stable revenue stream to maintain their viability. See a summary of the results of the annual Forward Capacity Auctions.
The FCA procures capacity using a set of administratively determined sloped demand curves that are designed to ensure that the region procures sufficient capacity to meet its mandatory resource adequacy planning criterion. These demand curves are downward sloping to ensure:
One system curve specifies a price for each capacity level for the region as a whole. Starting with the FCA held in 2017 for the 2020–2021 capacity commitment period, zonal demand curves are also used to reflect the additional congestion price to be paid on top of the system capacity price for specific constrained capacity zones—geographic subregions of the New England Balancing Authority Area that may represent load zones that are export-constrained, import-constrained, or contiguous (neither export nor import constrained). The systemwide and zonal demand curves are collectively referred to as marginal reliability impact (MRI) demand curves.
More specifically, zonal demand curves for import-constrained zones will specify a positive congestion price (or zero) to reflect that capacity in import-constrained zones provides greater reliability value, whereas zonal demand curves for export-constrained zones will specify a negative congestion price (or zero) to reflect that capacity in these zones may provide less reliability value. These zonal demand curves will also be downward sloping to reflect that an additional megawatt of capacity in a constrained zone provides more reliability benefit when the zone is tight than when it is long.
It’s critical for each FCA to procure only those resources that will meet all of their critical path schedule (CPS) milestones by the beginning of each capacity commitment period (approximately three years after the FCA). For that reason, resources must go through a qualification process designed to determine the amount of qualified capacity a particular resource can supply and to certify that each resource reasonably can be expected to be available.
The FCA treats new and existing capacity resources differently. This is one reason why each has a distinctive qualification process. Requirements may also vary by resource type: generating, demand, or import.
Learn more about qualification by resource type.
After an FCA, resources have several opportunities to acquire, increase, or shed all or part of their CSOs for a given capacity commitment period: