CAISO Market Operations

CAISO Market Refresh 

• CAISO is the second largest renewable energy market by deployment, just marginally behind TX, however, operating in CAISO isn’t trivial – the market works in a few layers, and all required capacity is procured in the DA market 

• However, two additional balancing markets run throughout the day – the Integrated Forward Market (IFM) and the Fifteen Minute Market (FMM) 

  

  • Integrated Forward Market (IFM): 

    • Bidding starts in the IFM the morning before the day starts and all operators submit bids for DA and AS for each operating hour. However, BESS with Resource Adequacy (RA) contracts are required to make bids for every hour 

  • Fifteen Minute Market (FMM): 

    • Once the day begins, FMM gets to work. Operators must submit bids 75 minutes prior to each operating hour. This is also referred to as the 75-minute lockout period 

    • FMM capacity is cleared in 15-minute increments 

  • Real-Time Dispatch (RTD): 

    • RTD works in 5-minute intervals and CAISO uses this to address sudden system wide issues like outages, demand spikes, etc. 

    • FMM awards can be adjusted in both directions in RT, and this can cause uncertainty about the immediate operating hours. 

• It is important to note that assets with firm AS obligations must have 60-minutes of SoC in the IFM and 30-minutes of SoC in the RTM to deliver and avoid penalties. 

Key Market Mechanisms & Initiatives

• Extended Day-Ahead Market (EDAM): This is a major ongoing initiative to expand the real-time WEIM into a day-ahead market.

  • Status: The EDAM is scheduled to launch in May 2026, with PacifiCorp and Portland General Electric as initial participants. Stakeholder workshops are ongoing to finalize tariff clarifications and implementation details.

    

• Flexible Ramping Product (FRP): This market mechanism is designed to manage the significant net load variability caused by high solar and wind integration.

  • Function: It procures capacity to handle forecasted movement and uncertainty in net load (total load minus solar/wind generation) in the real-time market.

  • Performance & Challenges: The CAISO net load can swing more than 20 GW in a single hour. While beneficial for grid stability, the FRP rarely presents consistent, high-value revenue opportunities for most battery energy storage systems (BESS) as prices are often zero due to sufficient available capacity. The Department of Market Monitoring has previously identified implementation errors in the product's demand curve calculations that resulted in under-procurement of upward capacity during critical ramps. 

    • FRP addresses real-time variability across the Western grid, with CAISO facing some of the steepest ramps

      

• SP15 hosts nearly 75% of CAISO’s battery storage, reflecting where solar growth and ramping needs are most concentrated.

• This regional buildout plays a major role in shaping real-time flexibility and FRP activity across the grid.

• As storage scales further, SP15 increasingly influences CAISO’s price formation and operational dynamics.

  

• Ancillary service prices in SP15 have declined sharply as battery storage has scaled across CAISO.

• With increased competition, services like RegUp, Spin, and Non-Spin offer far less revenue than previous years.

• This shift pushes storage operators to rely more on energy arbitrage and real-time market opportunities.

  

• With ancillary service prices declining, energy arbitrage now makes up the largest share of CAISO BESS revenue.

• Growing solar-driven volatility has increased DA–RT spreads, making arbitrage more valuable.

• As a result, storage operators rely more on price forecasting and real-time optimization to capture returns.

• TB4 opportunities come from predictable daily price swings in CAISO, where low midday prices encourage charging and high evening prices reward discharging.

• This spreads-based strategy is a major revenue driver for batteries under tolling agreements.

• Capturing these spreads consistently requires strong forecasting, SOC planning, and real-time optimization.

  

• California utilities and CCAs are rapidly increasing their TB4-settled procurement, growing from under 2 GW in 2023 to over 3.5 GW by 2025.

• TB4 contracts shift real-time operational risk from offtakers to independent power producers (IPPs).

• This structure gives utilities financial certainty while requiring storage operators to manage price volatility and dispatch performance.

• The growing adoption of TB4 highlights the market’s move toward financially settled performance-driven contracting for BESS.