Dive Brief:
- Federal energy regulators have allowed PJM Interconnection to raise its energy offer cap to $1,800/MWh in anticipation of rising costs this winter, RTO Insider reports.
- The move is aimed at ensuring capacity is online and the market is functioning in the event cold weather spikes generator costs past the $1,000/MWh offer cap which had been in place.
- The decision was issued on Jan. 16 and went into effect immediately. The revisions will be removed in April.
Dive Insight:
Last January when temperatures plummeted to record lows, gas prices spiked due to increased demand and natural gas pipeline deliverability issues. That caused generator marginal costs to exceed the $1,000/MWh offer cap, and because cost-based offers were capped at the same level, some generation was forced offline.
"This was never the intent of the offer cap. In fact, it is contrary to basic principles of PJM’s energy market design," the grid operator told FERC in its bid last month to raise the cap temporarily.
FERC agreed, raising the cap. But while natural gas is the fuel most likely to cause locational marginal prices to bolt past a $1,000/MWh, regulators refused to raise the cap only for those generators.
"Restricting the proposal to natural gas costs alone would be unduly preferential to those sellers whose electricity is from natural gas-fired generation," FERC said of the Independent Market Monitor's proposal. "The aim of PJM’s proposal is to allow generators – regardless of fuel type – to recover their marginal costs."
The revision to the cap will be removed in April, when the winter cold is over.