Here ISO-NE explains how the different types of generation compete to operate in the wholesale market.
The key points to a truely competitive market are referenced by ISO-NE as:
"Resource owners are motivated to offer prices close to their actual costs. If they bid too high, they may not be selected at all."
"Lower‑cost and more efficient resources are more likely to run and earn money."
"Over time, this encourages investment in newer, cheaper technologies, which can help lower prices for customers."
Of course, the renewable fad and elaborate subsidies granted by government has distorted and laid waste to all these key points.
Renewables do not offer "prices close to their actual costs." They are paid by ratepayers, due to government intervening laws a handsome amount outside the ISO-NE market so that they can offer prices well below their actual costs, which leads into the second key point "Lower cost and more efficient are more likely to run and earn money" Renewables are neither lower cost nor more efficient and can hardly be described as "earning" money.
And the third point only works for resources that earn their way into the market without subsidies. Renewables do not fit into this type of market.
When the restructuring of the electricity market was contemplated, it was to create a competitive electricity generation market. Government destroyed that with renewable energy laws.
Explainer: Who decides where New England’s electricity comes from?
ISO New England’s job is to make sure there is always enough electricity to meet consumer demand. But how does the ISO select which energy resources fulfill that need?
It’s not up to ISO-NE employees to pick and choose. Instead, the ISO runs energy markets where power plants and other resources compete based on price by submitting offers to provide electricity or reduce their use.
How the markets decide which resources run
Resources participating in the ISO’s competitive wholesale electricity markets — power plants, electricity importers, or certain large consumers willing to reduce electricity use — submit offers that say:
How much electricity they can provide (or by how much they are willing to reduce their consumption)
The price they are willing to accept
To determine which resources will run and when, ISO-NE relies on sophisticated computer models that consider each resource’s operating characteristics, the prices submitted by resource owners, and the need to keep the power system reliable at all times.
ISO‑NE’s software then sorts the offers from lowest to highest price. This list is called thesupply stack. To meet demand, ISO‑NE starts with the cheapest offers and works its way up the supply stack until there is enough electricity to serve consumers.
This process is calledeconomic dispatch. If demand goes up, more (and usually more expensive) resources are added. As demand declines, higher priced resources reduce output first, and when operating limits permit, they may be shut down. “Economic dispatch ensures that, at every moment, the system uses the lowest-cost available resources to reliably meet electricity demand,” said Xiaochu Wang, senior market and optimization scientist at the ISO.
Even though different resources offer electricity at different prices, they are all paid the same market price. This is called theuniform clearing price.
The uniform clearing price is set by themarginal resource— the last, most expensive resource needed to meet demand. All resources that are selected and run during a given period are paid at this same price, no matter what they originally offered.
This system is common in many markets. Electricity is treated like a commodity — every unit of electricity has the same value once it reaches the grid. Paying every resource that clears the same price reflects that shared value.
This approach encourages fair competition and efficiency in a few ways:
Resource owners are motivated to offer prices close to their actual costs. If they bid too high, they may not be selected at all.
Lower‑cost and more efficient resources are more likely to run and earn money.
Over time, this encourages investment in newer, cheaper technologies, which can help lower prices for customers.
Day‑Ahead Energy Market: Participants buy and sell electricity for the next day in one-hour increments. This helps them plan ahead and manage price risk.
Real‑Time Energy Market: Participants buy and sell electricity in five-minute increments as the day progresses. This helps ISO‑NE balance actual supply and demand.
If actual supply or demand differ from day-ahead schedules, the deviations are settled in the real-time market at real-time prices. Under thistwo-settlement system, participants are financially settled based on their day-ahead positions and any real-time deviations, meaning they may pay more or less depending on the accuracy of their day-ahead schedules.
Real‑world complexity
In reality, the system is far more complex than the simple example above suggests. Prices vary by location (due to congestion on the transmission system), by time of day, and due to factors like fuel costs, weather, and electricity losses during transmission. Sometimes ISO‑NE must run certain resources for reliability reasons, even if they cost more.
Despite the complexity, the goal stays the same: keeping the lights on and delivering reliable electricity at competitive prices.
How a Competitive Electricity Market Went Bad for New England
by Dan McKay
5 hours ago
Here ISO-NE explains how the different types of generation compete to operate in the wholesale market.
The key points to a truely competitive market are referenced by ISO-NE as:
Of course, the renewable fad and elaborate subsidies granted by government has distorted and laid waste to all these key points.
Renewables do not offer "prices close to their actual costs." They are paid by ratepayers, due to government intervening laws a handsome amount outside the ISO-NE market so that they can offer prices well below their actual costs, which leads into the second key point "Lower cost and more efficient are more likely to run and earn money" Renewables are neither lower cost nor more efficient and can hardly be described as "earning" money.
And the third point only works for resources that earn their way into the market without subsidies. Renewables do not fit into this type of market.
When the restructuring of the electricity market was contemplated, it was to create a competitive electricity generation market. Government destroyed that with renewable energy laws.
Explainer: Who decides where New England’s electricity comes from?
ISO New England’s job is to make sure there is always enough electricity to meet consumer demand. But how does the ISO select which energy resources fulfill that need?
It’s not up to ISO-NE employees to pick and choose. Instead, the ISO runs energy markets where power plants and other resources compete based on price by submitting offers to provide electricity or reduce their use.
How the markets decide which resources run
Resources participating in the ISO’s competitive wholesale electricity markets — power plants, electricity importers, or certain large consumers willing to reduce electricity use — submit offers that say:
To determine which resources will run and when, ISO-NE relies on sophisticated computer models that consider each resource’s operating characteristics, the prices submitted by resource owners, and the need to keep the power system reliable at all times.
ISO‑NE’s software then sorts the offers from lowest to highest price. This list is called the supply stack. To meet demand, ISO‑NE starts with the cheapest offers and works its way up the supply stack until there is enough electricity to serve consumers.
This process is called economic dispatch. If demand goes up, more (and usually more expensive) resources are added. As demand declines, higher priced resources reduce output first, and when operating limits permit, they may be shut down. “Economic dispatch ensures that, at every moment, the system uses the lowest-cost available resources to reliably meet electricity demand,” said Xiaochu Wang, senior market and optimization scientist at the ISO.
Even though different resources offer electricity at different prices, they are all paid the same market price. This is called the uniform clearing price.
The uniform clearing price is set by the marginal resource — the last, most expensive resource needed to meet demand. All resources that are selected and run during a given period are paid at this same price, no matter what they originally offered.
This system is common in many markets. Electricity is treated like a commodity — every unit of electricity has the same value once it reaches the grid. Paying every resource that clears the same price reflects that shared value.
This approach encourages fair competition and efficiency in a few ways:
Different timeframes
ISO‑NE runs two closely linked energy markets:
If actual supply or demand differ from day-ahead schedules, the deviations are settled in the real-time market at real-time prices. Under this two-settlement system, participants are financially settled based on their day-ahead positions and any real-time deviations, meaning they may pay more or less depending on the accuracy of their day-ahead schedules.
Real‑world complexity
In reality, the system is far more complex than the simple example above suggests. Prices vary by location (due to congestion on the transmission system), by time of day, and due to factors like fuel costs, weather, and electricity losses during transmission. Sometimes ISO‑NE must run certain resources for reliability reasons, even if they cost more.
Despite the complexity, the goal stays the same: keeping the lights on and delivering reliable electricity at competitive prices.
Go Deeper: A more detailed version of this article appears on the ISO New England website.