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by Rob Strange
Market changes are coming. ISO New England (ISO-NE) is leveraging market-based solutions to create new day-ahead ancillary services and is integrating them into its existing day-ahead energy market. This new market is designed to capture interactive resource effects and support the development of an optimized, flexible grid.
The new day-ahead ancillary services (DA A/S) market design is set to go live in March 2025.
Here’s what you need to know.
What Does This Mean for ISO-NE Market Participants?
The new day-ahead ancillary services (DA A/S) market design will directly improve the ability of system operators and generation owners to respond to the system’s sudden energy shortfalls by dispatching fast-ramping, reserve-capable resources. This phenomenon will occur more often as more intermittent resources supply energy needs and unexpected spikes in demand increase.
Intermittent renewable resources can produce competitive low-cost energy, but when the wind suddenly stops blowing or cloud cover diminishes solar irradiance, dispatchable resources must respond quickly to energy fluctuations.
As a result, reliability for offsetting this energy will now be included in the day-ahead market, rather than only being settled in real time.
How Renewables Are Impacting the Market
Demand variability in the ISO-NE region is increasing, making it challenging to accurately calculate day-ahead load forecasts and locational marginal prices (LMP). This variability is often related to extreme weather events and the associated impacts on weather-sensitive end-uses and flexible loads.
The DA A/S products should significantly increase market efficiency and reliability by improving day-ahead forecasting estimated LMP and associated probabilities that will accurately reflect market conditions.
The upcoming DA A/S market mechanism is designed to significantly enhance the success of renewable resources and reliability in the region. The ISO can now secure competitive day-ahead ancillary services to cover a contingency in the operating day. Yes Energy is monitoring DA A/S market participation and analyzing the impacts on grid services when renewable energy shortfalls occur.
In addition, this initiative could attract more investment and trading opportunities in the growing ISO-NE area.
What to Know about the Day-Ahead Ancillary Service Market Design
The new DA A/S products will include Flexible Response Services (FRS) and Energy Imbalance Reserve (EIR).
The Flexible Response Services (FRS) will retire their existing Forward Reserve Market (FRM) and improve the ISO’s capability to respond to sudden source-loss contingencies by dispatching fast-start spin and non-spin resources. The new FRS product will ensure that the least-cost resources respond to the contingency and are compensated accordingly.
The EIR product will create in-market actions to cover the “energy gap” that exists between the megawatts (MWs) cleared in the day-ahead energy market and the day-ahead forecasted load.
The day-ahead market often underclears MWs due to increasing supply and demand variability. ISO-New England’s forecasts will generate a probability for hourly hub LMP, with confidence intervals indicating uncertainty.
To maintain accuracy, the ISO’s forecast statistical model must regularly retrain based on structural factors affecting supply and demand, such as weather. Without retraining the model to fit to market conditions, the forecast's standard error will grow larger over time.
For more insights on winter market conditions, see how eastern ISO markets are responding to winter risk.
What Do We Predict Will Happen with These Changes?
The DA A/S market will incentivize participants to bid their maximum capacity at the cheapest cost.
Before DA A/S, participants’ strategy might have been to underbid in the energy market to withhold capacity for real-time adjustments. The DA A/S will provide better compensation for contributions to meet reliability requirements, which previously weren’t adequately reflected in the real-time ancillary services.
This new DA A/S framework aims to uphold and recognize the cost of maintaining reliability as market conditions change, leading to increased uncertainty in supply and demand.
Once all the day-ahead energy and ancillary services offers are received in the day-ahead market, the day-ahead clearing engine will co-optimize the energy and ancillary service markets simultaneously. In concert with day-ahead energy prices, the ancillary services will clear with greater confidence by determining the lost opportunity cost that resources incur to provide ancillary services instead of energy.
The units awarded with the EIR credit (known as Forecast Energy Requirements) will address discrepancies between the cleared day-ahead forecast and mitigate out-of-market supplemental commitments in the real-time market.
The Benefits of Day Ahead Ancillary Services
The DA A/S enhancement will enable system operators and generation owners to plan against a range of market conditions. Co-optimization and improved day-ahead forecasting will prepare units for the next operational day, enhancing efficiency.
Furthermore, co-optimization and day-ahead forecasting can also benefit all market participants. Leveraging the enhanced day-ahead market data and associated modeling can fine-tune strategy when making offers or bids. By analyzing advanced load forecast models, participants can better assess the supplemental commitments that might be needed and improve hedging for price volatility.
The upcoming DA A/S market mechanism could significantly impact the success of renewable resources and reliability in the region.
This initiative will likely attract more investment in the growing ISO-NE area and improve market competitiveness across the fuel types.
As ISO-NE adds more renewable energy sources to the supply stack, it will phase out aging traditional energy resources.
This will change how the power grid operates.
DA A/S products will help manage the resource’s positive and negative interactive effects in the supply stack. However, ISO-NE needs to ensure it has the right mix of resources to maintain reliability while keeping costs low. The interconnection queue in ISO-NE is quickly shifting toward intermittent renewable energy and energy-limited battery storage. See below for a breakdown of the interconnection queue in NEISO by fuel type. The percentages are based on the project capacity in the queue for each fuel type with a reported online date of 2025-2030. As you can see below, a majority of the projects in the queue are intermittent renewable energy resources like wind and solar. Also, a high percentage of the queue (36% to be exact) is made up of energy storage resources, which can help maintain grid reliability when intermittent resources like solar have sudden drops in generation.
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Percentages by MW capacity shown. Source: Yes Energy’s Infrastructure Insights Product
ISO-NE is working on reforms to capacity and resource accreditation that will significantly impact how capacity revenue and the interconnection queue operate.
Stay Up to Date on ISO-NE Market Changes
The Market Monitoring Team at Yes Energy is actively tracking upcoming changes to market policy and analyzing their impact on market data.
Stay updated by following our blog, and reach out to Yes Energy for comprehensive details regarding the rollout of the DA A/S and other anticipated market changes. By staying informed of upcoming changes, you can better prepare for new developments and turn them to your advantage.
About the author: Rob Strange has over 10 years of experience in analytics and product development for energy solutions. His specializations include integrated DER grid benefits and resource planning by modeling grid capacity, economic conditions, and end-use characteristics. Rob is a senior market analyst on the market monitoring team at Yes Energy, leveraging his analytic experience to track and evaluate how regulatory changes impact energy market data and related market signals.
