The PJM Interconnection on Friday proposed revamping its capacity market rules to bolster grid reliability as renewable and energy storage resources replace fossil-fueled power plants.
The proposal is contained in companion filings with the Federal Energy Regulatory Commission. One filing aims to enhance PJM’s resource adequacy risk modeling and capacity accreditation processes and bolster its testing requirements for capacity resources. The other filing centers on its offer cap and capacity performance rules, including taking a forward looking approach for determining energy and ancillary services revenue to calculate the offer cap and minimum offer price.
PJM asked FERC to approve the proposals at the same time by Dec. 12 to give the grid operator time to prepare for its next annual capacity auction set to start on June 1. PJM said it plans to consider additional changes to its capacity market, such as switching to a seasonal market.
PJM’s proposals follow about two years of stakeholders meetings, which were given urgency following Winter Storm Elliott in late December when the grid operator narrowly avoided rolling blackouts.
“The proposal, while enhancing reliability, would maintain fundamental principles of competition that control costs for consumers as well as incentivize investment in new resources,” Adam Keech, PJM vice president of market design and economics, said in a statement. “Maintaining enough resources that can support reliability are crucial to PJM’s ability to serve demand through the transition to a less carbon-intensive grid.”
Both filings are “just and reasonable” by themselves, but PJM urged FERC to approve them together.
“This will appropriately reflect the synergies between compensation for risk and bonus eligibility with the new testing requirements and accreditation rules that will apply to capacity resources that are committed in PJM’s capacity market,” PJM said.
PJM said it needs more sophisticated tools to model the factors affecting resource adequacy risks including extreme weather and correlated generator outages.
In a sign of pending changes to the resources in its footprint, standalone renewable or hybrid resources make up 97% of the 230 GW in PJM’s interconnection queue, according to the grid operator.
The shift to intermittent renewable energy away from fossil-fueled generation presents an operational challenge because wind and solar power production may not match the times when electricity is needed, according to PJM, which operates the grid and power markets in 13 Mid-Atlantic and Midwest states and the District of Columbia.
While gas-fired power plants can be extremely flexible and provide a significant amount of the energy and grid services PJM needs to maintain reliability, generators that lack on-site secondary fuel sources may be exposed to a “common-mode failure” if there are disruptions in the gas production and transportation system, PJM said.
PJM’s proposal takes a more granular, hourly framework for assessing risk drivers and probabilities of resource and energy inadequacy throughout the year rather than its current process of considering only peak load periods, the grid operator said.
PJM expects its capacity market rules will continue to evolve.
“These reforms are a critical but certainly not final step in maintaining resource adequacy in the PJM region given a changing resource mix and increased customer demands for reliable energy supplies to meet an increasingly digital economy,” the grid operator said.
Although its capacity auction schedule has been disrupted, the grid operator generally holds capacity auctions once a year to buy capacity three years ahead of time. The market is designed to make sure enough electricity is available to meet future needs.