Casey Roberts is a senior attorney at Sierra Club.
When the nation’s biggest power grid operator speaks about electricity reliability, people listen — especially now, with weather extremes challenging the grid year-round. With a loud and influential microphone comes responsibility to get analysis right, a standard grid operator PJM Interconnection did not meet with its report on power plant retirements and reliability. It stands in dire need of correction.
During Winter Storm Elliott, PJM, the grid operator for 13 states in the mid-Atlantic and Ohio River Valley, barely kept the lights on for 65 million people while about one-third of the region’s capacity was unable to generate electricity. The culprit was overwhelmingly coal and gas generators experiencing mechanical problems in the severe cold or deciding not to purchase the gas needed to run. These fossil fuel plants had been paid hundreds of millions of dollars to be there when consumers needed them, but they didn’t show up.
Less than two months later, PJM issued a report ironically expressing concerns that there could be reliability issues created by these same fossil fuel units retiring too quickly. The report ignores the glaring performance problems of fossil fuel power plants in extreme weather. It also neglects the need to reassess how their commitments to be online when ordered to run by PJM — their “capacity” — are valued. But the deepest flaw in the grid operator’s analysis is how it inexplicably assumes its own capacity market for buying these commitments will stop working.
PJM’s capacity market exists solely to ensure that the PJM region has more than enough power generators on hand to meet demand peaks and spikes. Indeed, this market regularly buys far more capacity than is needed. As in most markets, when the supply of capacity gets tighter, prices go up. But PJM mistakenly assumes that market prices will not respond to the high rate of fossil fuel retirements. In reality, the capacity market will attract new resources to enter the market and encourage some existing generators to stay around longer. More supply will in turn bring capacity prices back down.
A recently published report by Wilson Energy Economics debunks PJM’s analysis on this basis, and others. Not only does PJM bizarrely ignore the role its own market would play in preventing the situation it warns of, but it also assumes that demand will increase far more than PJM has previously forecasted. In reaching its most dire predictions, the report ignores how the Inflation Reduction Act — an enormously significant change to the investment environment for wind, solar and energy storage — would boost new capacity entry.
PJM’s assumption that capacity prices won’t budge even as supply falls creates further problems in its analysis. For example, PJM assumes retirement of all coal plants facing any compliance costs under EPA regulations to reduce soot pollution. In truth, some of those plants will decide to install the needed pollution control equipment to reduce their emissions. EPA estimates that less than half of the coal plants in PJM affected by the rule would retire, a nuance lacking in PJM’s report. PJM’s forecasts of sluggish new entry are heavily influenced by historically low rates of completion among new generation projects, but project developers’ behavior in an environment oversupplied with capacity is not a good proxy for market entry when demand for capacity increases.
The flaws in the analysis are compounded by PJM’s lopsided consideration of the effect of state and federal policies. PJM details the expected retirements associated with various state and federal safeguards to address carbon pollution and other environmental and public health harms, but it’s unclear if the analysis sufficiently factors in the effects of policies that incentivize development of clean energy resources. Those policies are lumped into a “black box” forecast, with no way for readers to confirm that the benefits of the policies have been fully accounted for.
PJM’s dour focus on the problems with fossil fuel retirements skips right past its own responsibility for impeding the entry of new resources that can reduce our overreliance on expensive gas, and fossil plants that won’t turn on if it’s too hot or cold outside. One of PJM’s most important jobs is to study and approve requests by new generation resources to plug into the grid, otherwise known as the interconnection process. Enabling new entry is critical to preventing consumers from being overcharged by existing generators that would otherwise face no competition. But PJM’s interconnection process is notoriously backlogged — most projects wait years to get approval to connect to the system.
If PJM is worried about having enough generation in the coming years, it should be focused on fixing this process so more projects can come online faster, which includes proactively building out strategic transmission lines rather than relying on a slow, piecemeal process. There is a growing consensus that grid operators like PJM have already delayed far too long in planning for the robust transmission system that we need to ensure reliability.
Given the flaws in PJM’s recent report, there’s a real risk readers see a wrong message about the transition to clean energy. In fact, the capacity market in PJM — combined with simple reforms needed to better reflect actual performance of fossil fuel generators in weather extremes — can ensure reliability at the least cost for consumers. No thumb should be put on scales to prop up expensive retiring resources. PJM should use its high-profile voice on energy to set the record straight.