Dive Brief:
- The PJM Interconnection is proposing to hold a one-time, two phase backstop procurement for 14.9 GW of new resources to serve data centers and other large loads in response to projected capacity shortfalls in the county’s largest grid.
- The process would start with PJM facilitating bilateral contracting between power suppliers and large loads from September through March, according to the proposal released Friday. In the second phase, PJM would procure any remaining needed capacity through a PJM-run central procurement in March.
- The proposed procurement amount could be scaled back during a review period, according to PJM. “With residential customers exposed to over-procurement costs, we expect utilities to be more cautious on load forecasts,” equity analysts with Jefferies said in a note on Monday. “States and utilities will not likely be keen to seeing this level of procurement and hence [we] expect clear pushback.”
Dive Insight:
PJM’s proposal is part of a series of measures PJM is taking to bring new resources to its footprint to meet rising demand forecasts, driven by data center development. Those efforts include a FERC-approved one-time Reliability Resource Initiative that is fast tracking the interconnection review of about 8 GW of generation and a proposed Expedited Interconnection Track for up to 10 generating projects a year over two years.
“Current projections show a potential capacity shortfall of 50 GW to 60 GW in the next decade, primarily driven by large load growth but also forecasted conventional load growth,” PJM said. “With longer construction times for some technologies, needed transmission build-out and other infrastructure needs (e.g., natural gas infrastructure), the PJM system needs to prepare for the net-new supply needed to maintain resource adequacy in the region.”
The grid operator said its backstop procurement proposal aligns with the “statement of principles on PJM” from the White House and governors of PJM states that calls for getting new generation online, allocating costs to the load that is buying the capacity and establishing “a one-time procurement to allow for a broader review of investment incentives in PJM with a focus on returning to competitive markets for resource adequacy as soon as possible.”
For its backstop procurement proposal, PJM plans to acquire 14.9 GW, but that amount could change after a review by utilities, according to a presentation on the plan, which is set to be discussed at a two-day Critical Issue Fast Path meeting that starts on Wednesday.
If approved by its board and federal regulators, the grid operator would start the procurement process with about six months of bilateral contracting between power suppliers and load. PJM and Charles River Associates, a consulting firm, would act as confidential intermediaries to provide matchmaking services between buyers and sellers, according to the proposal, but PJM would not be a counter-party in the transactions.
“Stakeholder feedback from both generation and load sectors suggests that bilateral contracting is the superior initial option, as it facilitates more efficient risk-sharing and tailored cost structures,” PJM said.
After the bilateral contracting concludes, in March, PJM would hold a bidding process to procure any remaining capacity shortfall from its overall procurement target. Utilities would pay for their share of the central procurement.
Supply bidders could offer terms of two- to 15-years. If selected, winning bidders would be required to offer their capacity into PJM’s base capacity auctions at $0 and the resource would receive the auction’s clearing price.
Winning bidders would be paid under a “contract for differences” approach. They would receive revenue from PJM’s regular base capacity auctions and then be paid more — or be required to pay PJM back — to reach their contract amount.
Eligible resources include new projects, capacity additions to existing power plants and repowering deactivated generators. New demand response and distributed energy resources would also be eligible for the procurement process. The projects must show they can be operating by June 1, 2031, with any network upgrades also in place. Delayed power plant retirements would be ineligible for the backstop process.
PJM plans to issue a request for information on Wednesday with a May 4 response deadline to gauge interest in a backstop procurement. The RFI’s results could affect the final proposal, which PJM plans to file at the Federal Energy Regulatory Commission in June for its review.
PJM runs the grid and wholesale power markets in 13 Mid-Atlantic and Midwest states and the District of Columbia.
