Resource Adequacy in PJM: too much a good thing?

March 24, 2020

PJM has been criticized of late (along with several other grid operators in the US) of over-procuring resources in its capacity market. At 29% in 2019, PJM had the second-highest anticipated reserve margin among deregulated energy markets in the US. 

Over the past ten years, PJMs system peaks have been flat or declining, highlighting the region’s over-forecasting woes.

In PJM’s defense, there are two significant reasons why the RTO has consistently taken a long position on resource procurement. Both have the rate-paying customer in mind. 

For one, if PJM has the option to buy cheap capacity due to there being an abundance of it,  they buy it. Consider the alternative, if less capacity were available it would cost more and eventually ratepayers would end up seeing higher prices on their electricity bills. 

Next, PJM has historically over forecast its requirements, resulting in the RTO purchasing a good deal more capacity than it needs in the Base Residual Auction (BRA) and selling it back in the Incremental Auctions (IAs), which are held so PJM can make exactly those kinds of adjustments. 

Over procurement of resources isn’t necessarily a bad thing, but PJM is nonetheless seeking to improve its load forecasting methods. 

Exactly what that will entail is yet unknown, but any adjustment will likely affect capacity prices in future forward capacity auctions, potentially driving them down since PJM will be seeking less capacity once its forecasting is honed.

That’s in the future. Let’s spend the next few minutes looking at what’s affecting PJM’s present and subsequent push to tomorrow. 

PJM’s drive to the future

Every deregulated energy market in the US is working to evolve its grid’s fuel mix from fossil-based sources to those that are cleaner and more renewable. To borrow an archetype from a fable we all know, some markets–California, New York, and New England, for example–have chosen to sprint ahead like rabbits and lead the march toward energy’s future. 

PJM prefers to play the role of the tortoise, opting for a much slower evolution of its grid. Their logic is sound. Let the other markets take an early-adopter position and learn from their wins and mistakes. All the while, work to keep the grid at home reliable and the rates reasonable for consumers. 

That steady-as-we-go attitude helps explain that while PJM is working to integrate distributed energy resources onto its grid, there currently aren’t ample opportunities to monetize these resources in the marketplace. 

Monetizing DERs in PJM

Currently, there are no opportunities to monetize front-of-the-meter distributed generation in PJM. Few opportunities exist behind the meter, either. That will likely change in the near future. Before we get into the reasons why, let’s define DERs and explain how they interact with the grid.

Distributed Energy Resources (DERs) are, technically-speaking, resources that are connected to the grid at the distribution level rather than at the transmission level. The distinction is important to energy wonks because the rules in PJM for connecting to distribution lines differ from the rules for connecting at the transmission level. 

Resources that are in front of the meter (meaning they do not serve a retail load directly) are treated the same in the market place as any other resource, once they’re connected to the grid. Many DERs, however, are behind the retail meter and help offset customer loads purchased from the grid. 

As long as the DER does not inject into the grid (i.e. generate more kW than there is load) the DER can be treated as demand response.  However, if the DER is able to inject and offset the owner’s load, things get really complicated, especially if the owner can curtail load (shut down processes, reduce lighting, etc) in addition to operating energy sources. 

Commercial and industrial organizations especially desire DERs and have been implementing them behind their meters for the last several years. They’re doing this for their own reasons, namely to reduce demand, transmission, and energy costs while upping their organization’s resilience. If the economics are right, there is no reason to think behind-the-meter DER implementation won’t grow in the future.

If PJM doesn’t soon devise ways to allow these popular resources to be monetized, the grid operator may find itself in the unenviable position of not having enough demand-side resources to call on during times of grid stress or unusually high prices. That’s because the more organizations incorporate behind-the-meter distributed resources to generate their own electricity the less load they’re drawing from the grid. The consumers’ meters are essentially dropping, meaning they are consuming less electricity from the grid. This inevitably leads to less load that the grid can call on via demand response when the grid is stressed or electricity prices are high. PJM’s forecasting takes this loss of load into account and therefore needs less load to procure.  

PJM is working on these issues,  but progress has been slow.


This post was excerpted from the 2020 State of Demand-Side Energy Management in North America, a market-by-market analysis of the issues and trends the experts at CPower feel organizations like yours need to know to make better decisions about your energy use and spend.

CPower has taken the pain out of painstaking detail, leaving a comprehensive but easy-to-understand bed of insights and ideas to help you make sense of demand-side energy’s quickly-evolving landscape.

Download Your Copy

Published by

Avatar

Dann Price

Mr. Price has specialized in PJM Demand Response for more than 10 years. As CPower’s Executive Director of Market Development for the PJM market, he is responsible for keeping hundreds of customers with thousands of sites up-to-speed on market conditions, energy prices, program particulars, and regulatory issues in the ever-changing PJM demand response market.

Avatar
Dann Price

Mr. Price has specialized in PJM Demand Response for more than 10 years. As CPower’s Executive Director of Market Development for the PJM market, he is responsible for keeping hundreds of customers with thousands of sites up-to-speed on market conditions, energy prices, program particulars, and regulatory issues in the ever-changing PJM demand response market.