Demand-side management (DSM) providers clashed with generator interests over PJM’s treatment of seasonal resources at Federal Energy Regulatory Commission technical conference this week.
PJM and generators said that rules barring seasonal resources from participating in the capacity market are necessary to ensure reliability and prevent price suppression. DSM providers said the rules are little more than an attempt to raise revenues for merchant generators.
PJM told regulators it is considering changes to its capacity market rules through a stakeholder task force, and that any changes from that group could be in place before the grid operator’s May 2019 base residual auction.
PJM’s capacity performance rules put in place after the 2014 Polar Vortex require resources in the capacity market to be available throughout the year.
The aim is to ensure that capacity resources are always available, but clean energy advocates say they prevent seasonal resources from winning capacity contracts they would have gotten before the rule change.
Some DSM and efficiency resources, like air conditioner demand response programs, only operate during hot summer months, while some renewables, like wind, may have higher capacity factors in winter. FERC called for a technical conference in February after a clean energy trade group and a co-op challenged the restrictions.
DSM providers say the seasonal rules are more about benefiting traditional resources than ensuring the lights stay on.
“There is a bias against including demand response in the capacity market,” said Marjorie Phillips, director of RTO and federal policy at Direct Energy, a retail electricity provider.
There is “legitimate concern” that capacity market revenues in PJM are not sufficient to support many generators, Phillips told regulators, and “one way to get them up is to kick demand response out.”
PJM generators, however, expressed concern that allowing seasonal demand-side programs to win capacity contracts could upend the PJM market structure, which they said was built on the idea of a single type of capacity contract.
“I’m very wedded to the concept of a single homogeneous product, said Roy Shanker, an independent consultant working for the PJM Power Providers, a generator trade group. Reforming the capacity markets to handle multiple resources could be done, he said, but the work would be “scary” and “daunting.”
“I don’t know how prices will set” under that model, he said.
PJM and its Market Monitor, meanwhile, argued that seasonal demand-side resources would suppress capacity prices because they would only have to deliver for part of the year.
“The fact that prices go down as the result of the allowance of an inferior product — a product that only has to respond part of the year — is suppressive of what the competitive clearing price that you would get if you had a homogeneous product that all resources had to compete to provide,” said Stu Bressler, vice president of markets and operations at PJM.
Not all panelists agreed with the grid operator and generators. Sam Newell, a principal at the consultancy The Brattle Group, said the “idea of price suppression has been a little bit overplayed.”
“Summer-only resources have almost as much reliability value as annual [resources] because most reliability needs are focused on the summer,” PJM’s peak load months, he said. Even with some seasonal resources, “the price will still be set by the highest offer of the annual resource.”
The PJM task force is currently considering a proposal to allow seasonal resources to combine with each other to bid for annual capacity contracts, a change that could be approved by next year’s capacity auction. Phillips and other DSM providers welcomed that effort, but said the discussions could be spared by allowing seasonal resources once again.
“I think it’s great PJM is doing it but it’s because they’re scared to death you [at the FERC] will make them bring back summer DR,” Phillips said.