Dive Brief:
- The PJM Interconnection will hold a one-time backstop capacity auction starting in September to address a 6.8-GW shortfall from its just-held capacity auction for the delivery year that starts in mid-2028, according to a proposal the grid operator’s board released Monday.
- Also, new data centers and other large loads that don’t bring their own power supplies will be curtailed when grid demand levels near emergency conditions, according to a summary of a separate proposal.
- PJM’s board expects the grid operator will file the proposals for review by the Federal Energy Regulatory Commission before the end of this month.
Dive Insight:
“PJM will take the actions within its authority to procure needed supply and maintain reliability, while supporting states and other responsible authorities in ensuring that the costs associated with new large loads are allocated appropriately,” the grid operator’s board said in a letter to stakeholders.
PJM estimates that large loads could grow by 70 GW by 2038 across its footprint, which includes 13 Mid-Atlantic and Midwest states and the District of Columbia, according to the board.
The board said it will direct PJM staff to exclude any incremental new large loads that don’t bring new power supplies from the demand forecasts used in future auctions.
“Existing consumers should not bear higher capacity costs caused by new large loads that do not bring, or otherwise contract for, the new supply necessary to serve them,” the board said.
Removing data center loads that don’t have their own power supplies from the capacity auction’s demand forecast should lower capacity prices over time, according to equity analysts with Jefferies.
The proposals from PJM’s board build on and are largely in line with fast-track stakeholder processes conducted by the grid operator this year, according to Julia Hoos, head of USA East at Aurora Energy Research.
“The procurement target for the backstop auction is ambitious, but it's nowhere near close enough to what's needed if all this large load shows up,” Hoos said in an email to Utility Dive. “It’s an effort to plug the gap and then push the responsibility for procuring new generation onto the large loads themselves.”
Backstop auction
Under the board’s proposal, PJM will hold a capacity auction to acquire 6.8 GW — minus any bilateral contracts that emerge before the auction — to address the grid operator’s failure in its last base capacity auction to reach a 20% reserve margin. The auction’s target amount could also be reduced by new integrated resource plan supply or large load demand-response commitments, according to the board.
If approved by FERC, the auction would start on Sept. 30 and run until Oct. 21. The 15-year commitments would be finalized before PJM holds its base capacity auction for the 2029/30 auction, set to occur in early December.
Costs from the backstop auction will be shared by load-serving entities in a manner “structurally consistent” with the way PJM allocates costs from its base capacity auctions, according to the board. It will be up to LSEs and state regulators to decide how the costs are applied to different rate classes, PJM said in a post on the decisions.
PJM plans to cap the overall cost of accepted supply offers at $555/MW-day, up from a temporary cap of $325/MW-day for its last base capacity auction.
Under the proposal, eligible resources must be online by June 1, 2032.
PJM will also manage a bilateral matchmaking process, which started with a request for proposals issued on June 9, according to the board’s plan. PJM hired Charles River Associates to oversee the process, with initial matches expected in August, according to the board. Additional matchmaking rounds could continue for six to nine months.
Data center curtailment
Under the board’s proposed Interim Resource Adequacy Service framework — previously called connect and manage — large loads that don’t bring new power supplies must reduce their load or switch to on-site backup resources when PJM’s system nears emergency conditions, starting on June 1.
Utilities and other electric distributors and transmission owners will be required to set the IRAS rules, which will need to be approved by state or local utility regulators.
Also, PJM will create a large load “registry” that would include a facility’s location, ramp schedule, capacity supply and other details. The registry will provide “critical data transparency” needed to set load reduction priorities for retail customers, the board said.
How will plans affect costs, reliability?
The board’s proposals retain two key features that will impose costs on PJM customers, according to Joseph Bowring, president of Monitoring Analytics, the grid operator’s independent market monitor.
First, data center load would remain in capacity auctions, which increased capacity costs by $29.4 billion over the last four auctions, he said in an email to Utility Dive.
“That number will accelerate in future auctions if PJM succeeds in increasing the maximum price in the auctions,” Bowring said.
Also, PJM’s IRAS proposal will increase wholesale energy costs and decrease reliability by interconnecting customers without adding generation to serve it, he said, noting the market monitor will have a more detailed response later.
In addition, a backstop auction that only addresses a deficit from a previous base capacity auction fails to “solve the crux of PJM's issue — new large loads which have yet to materialize,” the Jefferies analysts said. “We could see more backstops in the future, making PJM an increasingly bilateral market.”
Aurora Energy’s Hoos sees remaining risks for PJM.
”At the end of the day, the real-world challenges to building new generation fast enough haven't been fixed,” Hoos said. “Until we solve the underlying issues, prices will stay high.”
Growing interconnection costs are one of those risks, Hoos said. A power plant project planned in Ohio by Competitive Power Ventures dropped out of PJM’s fast-track Reliability Resource Initiative interconnection process after it was given an $878/kW interconnection cost estimate, according to Hoos.
“A few years ago, that was closer to the total cost to construct than the cost of just the interconnection,” she said. “I wouldn't be surprised if interconnection costs keep being a quiet project killer.”
FERC’s response to the proposals will likely “influence utility capital investment, data center development timelines and the allocation of reliability risks and costs,” ClearView Energy Partners, a research firm, said in a note Tuesday.
Correction: This story has been updated to reflect the PJM board's timeline for submitting the plan to FERC.
