I will explain the concept behind this calculation in very broad strokes because this is an issue that quickly gets into the “weeds.”
Distributors of electricity purchase the energy from generators using two methods:
2) Purchasing electricity on the spot market. Prices are bid by generators every day for the next day’s supply. Our market is managed by ISO New England, a nonprofit regional transmission organization. ISO stands for independent system operator.
The Charles River study focuses on the effect of Cape Wind's energy on the daily spot market. Each day, ISO NE takes bids for the next day's estimated requirement of electricity. These bids are entered into a "bid stack" which is ordered by cost of fuel. The daily bids are laid in on top of the electricity contracted by PPAs because the contracts create an obligation to purchase a certain amount of electricity each day.