PJM rejects Producers Trade Group’s request to exclude certain renewables from capacity auctions


UPDATE: March 7, 2022: The board of directors of PJM Interconnection on Friday rejected a request for the exclusion of certain renewable energy resources from the network operator’s next capacity auction.

Rejecting claims by PJM Power Providers Group, the board said PJM was following its rules correctly when it came to determining how much capacity renewable energy resources can provide to the grid.

PJM will soon begin a process to consider applying its “effective load capacity” methodology to thermal power plants, according to the council. PJM uses the methodology to determine the capacity that renewable resources can provide. Renewable energy advocates challenge there are times, such as during winter peak periods, when there are correlated downtime risks for fossil fuel power plants. PJM does not include those risks in its assumptions about the capacity the factories can provide, the advocacy groups say.

Diving Brief:

  • In separate letters, the environmental and clean energy trade groups monday urged PJM Interconnection’s board of directors to ignore a request from a trade group of power plant owners to exclude certain renewable energy resources from an upcoming capacity auction.

  • Requirement earlier this month by the PJM Power Providers Group (P3) is a “extreme and unjustified” effort to intervene in the PJM capacity market, said the American Clean Power Association, the Advanced Energy Economy and the Solar Energy Industries Association.

  • P3’s request to remove some intermittent renewable generation from the capacity auction is a sign that “regulatory winds” are turning against gas-fired generators in the PJM region, according to Tom Rutigliano, a senior attorney for the Natural Resources Defense Council (NRDC). “There was a bubble in gas investment and the bubble is now bursting,” Rutigliano said.

Overview of the dive:

According to the group’s letter to PJM and a deposit on January 31 at FERC.

PJM typically holds annual capacity auctions to ensure it will have adequate power supply in three years. PJM, which operates the network in 13 Mid-Atlantic and Midwestern states and the District of Columbia, held a capacity auction in May after a three-year delay and is preparing to hold another in June 2022.

In its letter to PJM’s board, P3 said the grid operator was issuing capacity bonds to renewable energy producers for “hundreds of MW” that cannot be delivered due to a lack of capacity. transmission capacity.

“The only logical remedy under these circumstances is to remove these MW from the supply stack for the planning year 2023-24 as well as subsequent auctions, until these resources are physically deliverable in the same way as for all other PJM system resources,” says P3.

PJM can make the switch before its next auction without FERC approval, according to P3.

Clean energy trade groups have urged PJM’s board to reject P3’s application. “The likely result would be to increase capacity compensation prices, to the benefit of existing thermal generators at PJM, and to the detriment of customers,” they said.

In their letter to the PJM board, environmental groups said the grid operator has been using the same process to value intermittent wind and solar resource capacity since at least 2010. process is included in PJM’s “effective carrying capacity” methodology. , which is used to set a capacity value for renewable energy storage facilities and has been FERC approved in July, the groups noted.

“The panel both specifically endorsed PJM’s approach as adequately addressing transmission constraints and rejected arguments, such as those adopted in the P3 letter, that further adjustments to the capacity value of intermittent resources to reflect transmission constraints are needed,” the groups said.

Two PJM committees review transmission needs for generator deliverability, depending on the groups.

“P3 should not send an alarmist letter to the board now as these discussions address the full spectrum of needs and possible reforms, nor attempt to disguise its members’ commercial interests as reliability concerns,” the directors said. groups.

Owners of natural gas-fired power plants in PJM’s footprint are feeling pressure as the grid operator’s rules undergo changes, including a rolling back an expansive minimum bid price rule (MOPR), according to Rutigliano.

The expanded MOPR would have protected fossil-fuel power plants from competition from renewable energy facilities supported by state policies, Rutigliano said.

PJM has consistently acquired more capacity than needed, leading to a glut of gas-fired power plants, Rutigliano said, pointing out a 2020 report prepared for the NRDC and the Sierra Club.

The network operator, for example, had a target reserve margin of 15.5% – an amount above the forecasted peak requirement – for the 2020/2021 capacity year auction, but found itself with a reserve margin of 29.1%, approximately 18,700 MW more than required. , according to the report.

Typically, excess supply should suppress capacity prices, but PJM and FERC have taken steps, such as adopting a strict MOPR, aimed at supporting prices, said equity analyst Paul Patterson. at Glenrock Associates.

“You’ve had a tremendous amount of new entry into a market that’s oversupplied by PJM’s own metric,” Patterson said.

In part, PJM is buying too much capacity because its demand forecast is consistently too high, according to Patterson.

“They’ve set up a situation at PJM, where they’ve actually done all kinds of things to encourage the next generation, and they’ve been doing that for a while, and any effort to remedy that will be more painful than if they never did to begin with,” Patterson said. “Eventually there will be a settling of scores and it won’t be nice for the generators.”


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