Download the fact sheet here.
Learn more in EPSA’s U.S. Competitive Electricity Markets Overview and Competitive Electricity Markets Spotlight: PJM Interconnection.
Competitive Wholesale Electricity Markets
More than 20 years ago, competitive wholesale electricity markets were established in many parts of the U.S. to help reduce power generation costs, increase competition and provide choice for consumers. Since then, these markets have consistently driven innovation, enhanced efficiency and improved operations. This new competitive era replaced an inflexible, vertically integrated utility model that was costly and failed to incentivize innovation. As competitive power suppliers, EPSA members have since delivered substantial economic benefits to consumers and businesses – by quickly adapting to and investing in lower-cost, efficient resources, and achieving lasting widespread, regional electric reliability.
NYISO: A State-Based Approach to Competitive Markets
The New York Independent System Operator (“NYISO”) manages New York’s electric grid and competitive wholesale electric marketplace. The NYISO serves 19.8 million New Yorkers. In addition to cutting consumer costs by $7.8 billion over its history through improved grid efficiencies, NYISO utilizes a diverse energy mix to provide New York with reliable power.
NYISO’s Energy Market secures electricity supply to meet consumer demand in real-time and in the near-term (sometimes referred to as the forward or day-ahead market). Power is bought and sold in the energy market much like a stock exchange – electric generators offer into the market at the price required to cover the costs of producing power and then utilities (or load-serving entities) bid for that electricity in order to meet their customers’ energy demand. The offers are then stacked in order from lowest to greatest and the energy market “clears” where supply and demand meet. Electric generators then receive the clearing price established from the utilities.
This base energy cost can be increased due to heavy demand areas (like big cities) and insufficient transmission to get all the supply to that demand (transmission congestion), much like rush-hour traffic. In the real-time, the market operator evaluates system conditions every 6 seconds, and increases or decreases the amount of power needed based on demand.
Reliable Electric Power:
To ensure reliability, NYISO also runs two additional power markets: capacity and ancillary services. NYISO’s Installed Capacity Market (ICAP) ensures enough power is available to be generated to meet demand, which encourages investment in new technologies and the retirement of outdated resources. Demand response tools support overall grid reliability by monitoring and reducing consumption when and where needed. Lastly, NYISO’s ancillary services market fosters competition between energy resources every six seconds as system needs change. These additional markets help keep power prices stable by ensuring availability when needed and preventing unexpected price spikes.
Building a Cleaner, Innovative Grid
Regional markets such as NYISO spur innovation by driving competition among suppliers, which in turn fosters clean energy technology innovation and reduces greenhouse gas emissions. By cultivating an environment in which all resources (renewables, natural gas, nuclear, etc.) can thrive, NYISO is a leader for progress, encouraging the development and integration of new, lower emission and increasingly efficient resources and facilitating the transition away from older, less efficient generation resources.
Competitive Power Suppliers Provide 11 GW of Generation to NYISO Customers
EPSA members operating in the NYISO footprint provide nearly 11 GW of generation capacity to the region. They include Calpine, Cogentrix, Competitive Power Ventures, Eastern Generation, GenOn, J-Power, LS Power, NRG and Vistra Corp. Many of these companies develop, own, and invest in all resources and technologies including natural gas, wind, solar, hydropower, geothermal, nuclear, coal, biomass, and storage. At the national level, EPSA members own and operate about 150,000 MW of power generation capacity in regions with access to competitive wholesale electricity markets, including more than 6,700 MW of generation powered by renewable resources and some of the world’s largest battery storage projects. Competitive power suppliers are industry leaders in efficient, cost effective clean energy investment and emissions reductions while providing least cost, reliable electricity.
EPSA Policy Recommendations for NYISO Policymakers:
Fair competition in the markets where electricity is bought and sold is good for consumers because it helps keep costs low and power generators efficient and innovative. Policymakers in New York should look to NYISO’s efficient operations and competitive markets to continue delivering least-cost, efficient, and reliable power generation solutions to support clean energy growth and greater electrification of the economy on a broad regional scale.
NYISO and stakeholders have developed a widely supported carbon pricing proposal that allows all resources to compete to reduce emissions. EPSA supports carbon pricing and policies that focus on reducing emissions at the least cost to consumers and encourages New York to continue to pursue competitive pathways to achieve cleaner, affordable and most importantly – reliable – power generation.
A Closer Look
NYISO: Where affordability and dependability coexist. Regional wholesale markets like NYISO provide significant benefits for customers and reliability.
How does competition reduce carbon emissions?
Competitive power suppliers can improve the environment, advance our economy, protect low-income customers, and ensure reliability—but we must preserve and expand competitive processes to accomplish this. Emissions reductions in wholesale markets are largely the result of competition prompting the entry of new, more efficient technologies. Clean energy has become increasingly cost competitive, with natural gas and renewable resources among the cheapest fuels on the market today. Power generators have followed market price signals to retire thousands of megawatts of coal, switching to natural gas and renewables and resulting in tremendous emissions reductions without relying on expensive subsidies, rate passthroughs, or mandates.
Alongside strong state environmental policies, the NYISO has lowered carbon dioxide emissions by 55% from 2000 to 2019. And wholesale energy prices in the NYISO market fell to an all-time low of $32.59/MWh in 2019. Investment in new, more efficient power generation technologies fosters competition and keeps consumer costs low.
New, less carbon-intensive technologies improve efficiency.
Along with accelerating emissions reductions, competition has been a key driver in incorporating more clean energy technology into the grid. NYISO has made significant strides in clean energy integration in recent years, including reducing CO2 emissions by 30 million tons in 2018 compared to 2000. Competition in NYISO has attracted clean energy technology including more efficient gas turbines and combined cycle plants – as well as encouraging the retirement of coal generation. The statewide energy mix is comprised of 39% generation from fossil fuels and 58% generation from zero emission resources, such as nuclear (33%), hydropower (22%), wind (3%), and other renewables (2%).
The NYISO energy mix and its ambitions in years to come are heavily influenced by public policy. In its quest to achieve a zero-emissions electric sector by 2040, NYISO aims to be 70% powered by renewable resources by 2030, according to the Climate Leadership and Community Protection Act (CLCPA) enacted by Governor Cuomo in NYISO continues to pursue its climate goals by diversifying its energy resources with:
- Proposed solar capacity of over 10,000 MW
- Proposed storage capacity of over 8,500 MW, including 3,000 MW of battery storage by 2030
- Proposed wind capacity of almost 21,000 MW, including 9,000 MW of offshore wind by 2035
How does NYISO guarantee dependable power for consumers?
Electricity is the bedrock of modern life – from lighting our homes to powering life-saving operations, we rely on the promise of ample power generation at any given time. To ensure reliable service for today and tomorrow, NYISO operates an installed capacity market that secures electricity commitments through monthly competitive auctions in preparation for the extreme temperatures of New York summers and winters. If generators fail to deliver power when it is most needed, they must pay significant penalties for non-performance. New York’s reliability requirements include a yearly “reserve margin” that sets the bar for how much capacity NYISO takes on in order to meet maximum peak demand. This ensures that electricity consumers enjoy affordable, reliable electricity service through peaks and valleys in demand in the immediate years ahead.
Customers win when companies compete.
In regional wholesale markets like NYISO, the government does not select winners and losers. Rather, customers win because companies are able to compete. In fact, consumers in the NYISO footprint enjoyed annual savings of $7.8 billion in 2019 by integrating more efficient resources, ensuring the lowest production costs, and reducing the need for reserves by drawing from a wide pool of power generators.
Wholesale electricity prices are heavily influenced by the cost of the fuels used to generate electricity. For example, gas-fired generation often sets the clearing price for electricity in the NYISO, and the chart above illustrates a direct correlation between natural gas prices and electricity costs in New York. As natural gas prices have fallen over the past 20 years, so have electricity prices. Today, as the cost of renewables and other resources continue to decline, market competition will continue to select the least-cost resources needed to meet demand.
NYISO: Where Least-Cost Solutions Provide More Emissions Reductions and Cleaner Technology
Large regional markets such as NYISO have shaped the future of clean energy technology by spurring innovation to reduce greenhouse gas emissions.
How does competition encourage innovation and consumer choice?
NYISO provides reliable power with a diverse, flexible mix of resources and technologies designed with reliability and affordability in mind. Since 2000, NYISO has developed 12,512 MW of new generation. In addition to new developments, competitive market pricing also initiated the retirement, suspension, and replacement of 8,642 MW of older, less efficient facilities. In competitive markets, like NYISO, investors bear the financial risk of transitioning to new technologies – not ratepayers. A properly constructed competitive power market should allow all customers to choose the products and services they desire while investment risk remains with resource developers and operators.
Competitive wholesale electricity markets: the key to resource innovation, consumer choice and a reliable, cleaner, low-cost power grid.
The Electric Power Supply Association (EPSA) is the national trade association representing America’s competitive power suppliers. EPSA members provide about 150,000 MW of reliable and competitively priced electricity from environmentally responsible facilities using a diverse mix of fuels and technologies including natural gas, wind, solar, hydropower, geothermal, storage, biomass, and coal. EPSA seeks to bring the benefits of competition to all power customers. Learn more at www.epsa.org and connect with us on LinkedIn and Twitter @EPSAnews.