ERCOT is the only major US wholesale market without a capacity market. PJM, ISO-NE, NYISO, MISO, and CAISO all run capacity markets. ERCOT pays generators only for energy delivered (energy-only market). PJM also pays for capacity availability. During extreme weather, ERCOT energy prices spike to clear the system. PJM caps the energy spike but charges customers for the capacity insurance year-round.
How energy-only markets work
ERCOT pays generators only for energy actually delivered. No payment for capacity availability outside of delivery.
During scarcity, ERCOT prices rise to a $9/kWh emergency cap. The high prices signal the need for new generation. Investors build generation expecting to capture future scarcity prices.
How capacity markets work
PJM pays generators for capacity available (whether dispatched or not) on top of energy delivered. The capacity payment is set by auction.
Customers pay the capacity charge year-round regardless of weather. PJM energy prices are typically lower during scarcity because generators are already paid for availability.
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