Markets

Adapting Wholesale Markets for Our Evolving Grid

More than two decades ago, PJM introduced competitive power markets in the U.S. – and today, we run the largest wholesale electricity market in the nation, with the mission of ensuring reliability at the lowest reasonable cost.

Capacity Market Auctions Scheduled – Minimum Offer Price Rule Implementation

Federal Energy Regulatory Commission (FERC) rulings in 2020 enabled PJM to reestablish the long-delayed capacity auctions necessary to ensure the future availability of generation capacity and other resources needed to help keep the bulk electric system operating reliably for consumers.

This nearly year-long process followed FERC’s landmark December 2019 order governing the Minimum Offer Price Rule. That order set administrative price floors for all new and some existing resources that are recipients of state subsidies for their participation in capacity auctions.

By November, FERC had signed off on PJM’s compliance filing to implement required capacity market changes, and approved a separate proceeding determining how PJM calculates the energy and ancillary services offset. That forward-looking offset is key when PJM determines how much capacity must be procured for its footprint.

With these FERC actions this year, PJM was able to commence pre-auction activities for the upcoming auction for the 2022/2023 Delivery Year and set an auction schedule that begins in May 2021. With these matters resolved, PJM hopes to be back on track with its traditional annual cadence of capacity auctions by 2024, thus ensuring long-term grid reliability by securing the appropriate amount of resources needed to meet predicted energy demand on a three-year-forward basis.

Reserve Pricing

In May, FERC approved PJM’s proposed rule changes to accurately align the procurement of reserves with their reliability value and to incentivize consistent response when deployed.

PJM filed its proposal in March 2019, and its changes will consolidate the tier 1 and tier 2 synchronized reserve products and align market-based reserve products in Day-Ahead and Real-Time energy markets, among other improvements. Synchronized reserves are the flexible resources that can supply or reduce consumption of power within 10 minutes. New reserve pricing rules more effectively value the versatility required for reliability and resource adequacy.

This represented a critical step toward setting up market rules to attract flexible reserves that, in turn, facilitate the reliable integration of renewable resources.

Reliable Market Participation by Storage, Renewable & Intermittent Resources

Today, storage plays a role in the PJM Regulation Market. Not only does PJM have about 300 MW of storage capacity in our system, but, looking forward, it also has approximately 15 GW of stand-alone energy storage and 17.5 GW of hybrid resources in the planning process.

As we looked in 2020 to broader participation by battery storage resources in the markets, PJM worked very closely and very intensely with our stakeholders to establish a fair capacity rating system for all of our resources, but also representative of the batteries’ true capability at any given time.

With members, our shared aim is to ensure that non-traditional resources, as a group, cannot offer to provide more capacity than their aggregate reliability value. That capacity rating system solution, the ELCC construct, calculates the capacity value of limited duration, intermittent and combination resources.

The ELCC construct replaced the 10-hour rule for storage resources, as well as the class-average approach for wind and solar. ELCC was endorsed by stakeholders in September and approved by FERC in November.

With this construct in place, PJM is better positioned with its members to ensure the PJM region maintains reliability through a resource adequacy paradigm that recognizes the benefits and limitations of each resource.

Distributed Energy Resources Market Participation – Order 2222

Another step forward on the path to the grid of the future occurred in September when FERC issued Order 2222. The order makes it possible – via aggregation – for resources connected to the electric distribution system such as solar, biomass, wind, storage, demand response and other distributed energy resources (DER) to bid competitively against large-scale utility power plants in regional power markets.

Order 2222 acknowledges that current ISO/RTO tariffs governing access to regional markets were designed for large-scale generation resources, and the order is expected to have broad impacts on market participation by DER. The primary stakeholder group that will be working on this compliance effort is the DER & Inverter-Based Resource Subcommittee (DIRS). PJM looks forward to working with state regulators in 2021 who have primary regulatory responsibility for distribution system interconnection and reliability.

Carbon Pricing Education & Analysis

Through PJM’s Carbon Pricing Senior Task Force, PJM, members and stakeholders studied and discussed the impacts of carbon pricing under certain constructs. In 2020, states within PJM’s footprint continued to chart their energy futures by policy, mandate and more, while PJM and its members evolved markets in parallel. As this industry transformation continues, PJM views markets as the most efficient way to attract and retain the flexible generation required for continuing resource adequacy.

In landmark 2020 proceedings, FERC explored carbon pricing and invited RTOs and ISOs to submit proposals for consideration. During a day-long technical conference in September, PJM offered its expertise on market design considerations. This was one example of research and collaboration emerging from the long-standing Carbon Pricing Senior Task Force. While states continue to advance their unique and respective energy policies, PJM supports, informs and collaborates with members and stakeholders through detailed analytics of the impacts of carbon pricing and potential border adjustments.