Experience with ancillary services in ISO New England's LMP markets

Abstract

The current ancillary services markets in ISO New England include two components: a locational forward reserve market and a real-time co-optimized energy and reserve markets. The locational forward reserve market was initiated in 2003, and was a capacity-type Forward purchase of non-spinning reserves to address the lack of revenue experienced by existing non-spinning reserve resources with low capacity factors but with high availability. The real-time energy and reserve market was instituted in October of 2006 to procure 10-min spinning, 10-min non-spinning and 30-min operating reserves along with energy at a system-wide level as well as locationally on a 5-min basis. Different from many existing reserve market markets, this Real-time Reserve Market does not accept bids but has similar outcomes as the previous Real-time Markets. It uses Penalty prices (similar to price caps) to value reserves when the system is short of meeting requirements or re-dispatch costs (if any) to value reserves when supply meets or exceeds requirements. In addition, the real-time reserve market optimizes the level of reserve import to a local reserve zone, maximizing the utilization of transfer capacity over an interface. As of today, the ISO NE's ancillary service markets have been working successfully. And ISO NE's external and internal ISO Market Monitor assessments of the market seem to indicate that the market design is working.