Capacity Accreditation, Part 2: Relevance of Capacity Revenues and Updates from the Northeast
Part 2 of our Multi-Part Blog Series on Capacity Accreditation and ELCC
Written By: Erin Smith, Principal Analyst; Raghu Palavadi Naga, Director; Eric Pinsker-Smith, Sr. Analyst; and John Keene, Sr. Director
Publish Date: June 22, 2022
Estimated Reading Time: 6 minutes
In our first blog in our capacity accreditation blog series (see Capacity Accreditation Part 1), we provided an overview of common capacity accreditation methodologies with an emphasis on effective load carrying capacity (ELCC) including a discussion on the various ELCC techniques. We noted that we would be back with a Part 2. Well, that time has come! Below, we unpack how different types of resources are expected to be impacted by capacity accreditation reforms, and we provide an overview of how NYISO, PJM, and ISO-NE are approaching these issues.
Who will be impacted by Capacity Accreditation reforms?
Resources accrue wholesale market revenue from three primary sources: energy, capacity, and ancillary services (Pay for Performance is a type of capacity revenue that pays resources that provide capacity during emergency events). Different resource types rely on revenue from the capacity market to different degrees.
To illustrate the potential impact of capacity accreditation, we analyzed the revenue mix of various types of resources in the New England control area over between 2017 and 2020 (see Figure 1). While the exact contribution of revenues from the sale of energy and ancillary services, capacity, and RECs could vary by jurisdiction, the ordering of these revenue streams is similar in most places in the northeast.
Figure 1: Estimated revenue mix by resource type in ISO-NE, 2017-2020

Note: capacity revenues calculated based on average clearing price across FCA 8, 9, and 10 (which represent the capacity commitment periods spanning June 2017 to May 2020) for the capacity zone (land-based wind is based on prices in the Maine zone, while offshore wind is based on the SEMA/RI zone). Battery revenues are reflective of a 2-hour duration resource.
As shown, the can vary considerably by resource type. Renewable resources typically acquire most of their revenue outside the capacity market. For instance, capacity revenues comprised only 9% to 11% of renewable energy project revenue in New England in 2017-2020. Nonetheless, as incentive structures evolve and competition among renewable projects increases, this stream of revenue has been gaining relevance across the northeast. For instance, the compensation that distributed solar resources receive under the VDER tariff in New York is explicitly tied to the spot capacity prices. Similarly, several GW of offshore wind resources are seeking to sell capacity in the ISO-NE and NYISO markets. As such, capacity accreditation reforms, which affect a resource’s capacity value and clearing prices, can have a significant impact on this small but increasingly relevant revenue stream for renewable developers.
As the uptake of renewable resources increases in response to decarbonization goals, it is widely expected that capacity accreditation reforms will drive capacity market revenues for to de minimis levels. This is because, as mentioned in Part 1 of this blog series, the capacity value of renewables decline as their penetration increases.
Figure 2: Marginal Capacity Value of Solar and Wind
A potential pathway for solar and wind projects to hedge against deflation of capacity (and energy) value that is widely being considered by developers is the addition of battery storage to their projects. However, as shown, the returns to investment in battery storage is heavily dependent on capacity revenues, and batteries could also be subject to declining capacity value as their penetration increases. This is particularly true for shorter-duration storage, which would see its ELCC value decline rapidly as the penetration of storage resources increases. Nonetheless, there is likely to be a synergistic effect between renewables and storage as higher penetration of renewables is expected to improve the capacity value of storage resources. Overall, adoption of an ELCC approach to capacity accreditation is likely to incent deployment of longer-duration storage (see Figure 3) and increase the value of storage at higher renewable penetration levels.
Figure 3: Marginal Capacity Value of Energy Storage
Combined cycle (CC) and combustion turbine (CT) natural gas plants are heavily reliant on capacity market revenue. The capacity values of these resources could also decline to the extent that an individual asset does not have firm back-up fuel and depends on pipeline gas, is slow ramping, and/or is otherwise constrained. An illustrative analysis by the ISO-NE’s External Market Monitor suggests that beyond a certain threshold (5-6 GW), the winter reliability value of capacity that is served by pipeline gas declines rapidly. The ultimate changes to the capacity value of thermal resources is unclear at this point, and will be the subject of several studies by the market operators in the coming months and years.
Now that we’ve provided an overview of ELCC, we can examine how different regions are valuing the reliability contribution of different resources in their footprints.
Updates from NYISO
On May 10, 2022, FERC issued an Order Accepting NYISO’s Proposed Tariff Revisions, which (among other things) accepted NYISO’s proposal to utilize a marginal ELCC capacity accreditation technique for capacity accreditation in its capacity market or, similarly, the marginal reliability improvement (MRI) approach developed by NYISO’s independent market monitoring unit, Potomac Economics. NYISO hired General Electric (GE) as a consultant to conduct the quantitative modeling to support the ELCC and MRI calculations in GE’s Multi-Area Reliability Simulation MARS software.
As expected, the NYISO’s results show that the capacity value of lower duration storage resources is substantially below 100%. The results also show that there is considerable variation in the value of medium duration (4-6 hours) storage resources across the zones. The results suggest that only 8-hour resources are likely to receive 100% credit for their capacity. Lastly, the ELCC results and the MRI results appear substantially similar. The MRI methodology requires substantially fewer computational resources than the ELCC methodology.
Figure 4: Preliminary ELCC and MRI Capacity Value for Energy Storage Resources

Updates from PJM
Unlike NYISO (which is pursuing a marginal ELCC approach), PJM uses an adjusted class average ELCC see FERC’s July 30, 2021 Order accepting PJM’s Tariff changes). Specifically, PJM uses the Delta Approach (based on work by consultant E3) to allocate capacity value of the portfolio to individual resources. The Delta Method allows PJM to adjust each resource class’s ELCC upwards or downwards based on its synergistic or antagonistic interaction with the portfolio.
Figures 5 and 6 provide an overview of PJM’s ELCC values for storage of different durations, solar projects, and hydro. PJM reported an ELCC class value for 4-hour storage that declined slightly through 2027 and hovered at an ELCC class rating of approximately 75% (i.e., the ELCC resource class’s share of total ELCC resource nameplate capacity) before increasing to 98% by 2031. PJM reported an ELCC class value for 6-hour storage that followed a similar pattern to the 4-hour battery, although it had higher class ratings that stabilized around 90% before increasing to 98% in 2030. PJM reported ELCC class values for both 8- and 10-hour storage that stayed constant at 100% throughout the period. PJM reported ELCC class values for hydro with non-pumped storage that hovered between 92% and 96% through 2029 before increasing to 100% by 2031.
Figure 5: 2024-2032 ELCC Class Ratings for 8- and 10-hour storage and hydro with non-pumped storage

Figure 6: 2024-2-32 ELCC Class Ratings for 8- and 10-hour storage and hydro with non-pumped storage

Updates from ISO-NE
ISONE is currently in the process of reforming its capacity accreditation processes, and in a recent presentation to its stakeholders, indicated that it is leaning towards the marginal approach to accrediting its capacity resources. ISO‑NE expects to make a filing in time to implement any changes by Forward Capacity Auction 19 (FCA 19) for the 2028-2029 capacity commitment period. This will be the same auction in which ISO-NE will fully eliminate the Minimum Offer Price Rule (MOPR), so big changes are coming to the way renewable capacity is treated in the Northeast.
We are closely tracking the developments related to capacity accreditation across the region. Should you require any assistance interpreting the revenue and/or cost implications of these reforms to your portfolio, contact any one of this blog’s authors.