FAQ: Understanding capacity shortage events
CLEAResult’s Clean Energy Markets team works with a variety of New England entities, including developers, corporations, utilities and schools, to support their participation in the ISO-New England (ISO-NE) Forward Capacity Market (FCM). The FCM is a competitive, long-term electricity market that helps ensure the regional grid has enough generation and demand-reducing resources to meet future energy needs, working three years in advance. Our team helps FCM participants navigate the complexities of the market. We do this by helping to register new projects, monitor the system output of those projects, and offer additional resources, auction strategies and management.
As energy demand continues to rise across North America – driven by population growth, electrification and increasingly extreme weather – grid capacity is under pressure. Grid operators, known as independent system operators (or ISOs), face mounting challenges in maintaining a reliable energy supply chain, especially during peak periods. When demand outpaces available supply, it can trigger what’s known as a capacity shortage event. In the ISO-NE market, these are referred to as Capacity Scarcity Conditions (CSCs). Because CSCs have occurred more frequently in the last two years than previously, we put together this FAQ to break down what CSCs are, why they happen, and how market participants can respond, why they happen, and how market participants can respond.
What is a CSC?
A Capacity Scarcity Condition (CSC) is an event that occurs when there isn’t enough energy supply to meet demand in the ISO-NE market. These events are typically triggered by extreme weather, unexpected generator outages or other unforeseen issues. CSCs can last anywhere from a few minutes to a few hours. During a CSC, ISO-NE will attempt to fill in demand gaps with energy from other ISOs (such as the New York ISO, PJM and equivalent Canadian operating bodies).
What happens for market participants during a CSC event?
When a CSC occurs, ISO-NE notifies all market participants (those registered in the Capacity Market), as well as anyone subscribed to system alerts. Notifications are sent both when the event begins and when it ends.
During a CSC, penalties may apply if a participant does not supply an adequate amount of energy to the market. This amount of energy required is determined by ISO-NE and may differ from the amount of energy the market participant previously agreed to in their Capacity Supply Obligation (CSO). If a market participant provides more energy than is required during the event, the ISO-NE will pay the market participant an incentive for that additional amount of energy.
Can market participants predict CSC events?
Unfortunately, no. There’s currently no way to forecast when a CSC will occur. There are so many factors that play into the meeting of supply and demand that there are not currently resources available to predict these events. During days of more extreme temperatures, one can assume that an event is more likely, though events can also occur independently of temperature.
How often do CSC events occur?
CSC events are rare and unpredictable, but they have become more frequent and longer in duration over the past three years, leading to an increase in penalties for many participants. We’ve seen one event each in 2022 and 2023, two in 2024 and one so far in 2025 (as of September 1). These events are typically triggered by extreme weather, unexpected generator outages or other unforeseen issues that affect supply or demand. The CSC that occurred on June 24, 2025 was likely caused by unusually high temperatures. These high temperatures caused demand to spike higher than was anticipated for that day leading to a shortage of energy supply.
What is a Capacity Supply Obligation?
When a CSC is declared by the ISO, market participants are expected to meet or exceed their energy commitments, called Capacity Supply Obligations (CSOs). CSOs are set three years in advance during the FCM auction and can be adjusted through monthly reconfiguration auctions (mRAs) and annual reconfiguration auctions (aRAs). Reconfiguration auctions are interim auctions that occur between FCM auctions and are an opportunity for a market participant to adjust their CSO. Adjusting one’s CSO may be advantageous if changes in one’s system has occurred or if upcoming events, like weather, are anticipated.
If a participant can’t meet their CSO during a CSC, they may face financial penalties. When demand is higher than anticipated, participants may also be required to supply more energy than their CSO or face penalties. Penalties are billed to each market participant.
On the flip side, those who can supply more than their CSO can earn financial incentives on that extra supply.
What about penalties and incentives for resources like solar and energy efficiency resources?
All resources in the FCM are treated equally when it comes to penalties and incentives. Therefore, intermittent resources, like solar, are subject to the same CSCs as non-intermittent resources. For example, solar resources cannot produce energy past sunset, but if a CSC occurs after sunset, the solar resource is subject to the same penalty potentials as a non-intermittent resource. The only exception is energy efficiency resources (EERs), which are not subject to penalties or incentives. EERs are composed of passive, non-dispatchable energy efficiency measures that reduce a customer's end-use demand for electricity. EERs are not subject to CSO penalties or incentives because, as determined by the Federal Energy Regulation Commission, their performance is difficult to accurately measure in real time.
What exactly is an mRA and how does it work?
A monthly reconfiguration auction (mRA) is part of the ISO-NE Forward Capacity Market. It gives participants a chance to adjust their CSOs two months before each obligation month, either by shedding or acquiring megawatts (MW). These reconfiguration auctions help balance supply and demand while maximizing overall system efficiency.
So, if we are in September, the mRA for November just took place. During this auction, participants could:
- Increase their CSO by acquiring additional MW. If a resource’s supply offer is priced below the main auction clearing price, it clears and the participant’s CSO increases by the offered megawatt amount that cleared.
- Reduce their CSO by shedding MW (participants are charged a rate for shedding MW). If a resource’s demand bid is priced above the main auction clearing price, it clears and the CSO decreases by the megawatt amount that cleared.
How can mRAs help reduce CSC penalties?
Because current CSOs were set three years ago during Forward Capacity Auction 16 (FCA16), participants are now locked into commitments that may not reflect current market conditions. mRAs offer a way to adjust those CSOs ahead of each obligation month. If a participant anticipates a CSC event, they can use an mRA to reduce their CSO and potentially avoid penalties.
However, this strategy involves risk. Shedding megawatts (MW) comes at a cost, and if a CSC event doesn’t occur in the month for which the CSO was reduced, the participant would have incurred unnecessary expenses and potentially missed out on incentive opportunities. On the other hand, if a CSC event does occur in the month that was shed for, the participant may avoid penalties and even earn incentives for supplying above their adjusted CSO.
Participants must evaluate their own risk tolerance. CLEAResult recommends meeting each March to develop an mRA strategy tailored to the upcoming summer months, helping participants balance risk and opportunity.
Our experts can help
CLEAResult’s Capacity and Energy Management (CEM) services help clients plan, adjust and optimize their energy commitments. Our experts can assist in developing mRA strategies, managing risk and maximizing incentives. Contact our CEM team to learn how we can support your goals.