Mapping the trajectories of the nation's regional grid operators demonstrates that PJM, the nation's largest grid operator and power market, is headed for climate disaster. While PJM has touted its market as a driver of emissions reductions, the story it paints — which relies nearly exclusively on coal-to-gas switching — is fundamentally ephemeral.

The nation will never meet the emissions targets necessary to avoid climate disaster by doubling down on gas. As PJM fuels a continued gas boom in the face of an ever-burgeoning pile of data that new gas generation is perilous for the climate and unnecessary to serve customers, it has become a cautionary tale on the dangers of the increasingly anachronistic myth of gas as a "clean fuel."

A comparison of the nation's electric grid operators shows that PJM is unique in the degree to which its markets have fostered gas development while hindering new development of wind, solar and other zero emissions electricity sources that states and customers want. While many factors, such as geographic resource potential, influence development in regional electricity markets, PJM's market structure has played a significant role.

Fundamental reforms are necessary for states in the PJM region to cost-effectively achieve their climate targets, which we must meet to avoid the worst consequences of climate change and secure a livable planet for future generations.

The US desperately needs to transition to zero emitting energy sources as fast as possible

With painful projections of the hardships that await with unchecked climate change, a fast shift to zero emissions grids is vital. Even ignoring the potentially massive negative impacts of methane leakage from upstream gas activities, as PJM's analysis appears to do, gas is still a carbon-intensive way to generate electricity. And any coal-to-gas switching benefits will decline further and further as the portion of expensive and highly polluting coal on the system decreases. To meet ambitious targets, the system must quickly integrate zero carbon resources like wind and solar energy. 

This is doable. Utility-scale wind and solar are zero-emissions and are the cheapest forms of new power generation today. Combinations of transmission, storage, demand-response and other flexible demand, and renewables can provide for a reliable grid (an extensive set of studies is linked in this paper). But a range of forces — from policy to politics to financial and institutional — influence the pace and scale of change, and it's clear that existing institutions are not facilitating decarbonization at the pace that is necessary.

Different markets have very different records on incorporating new zero-emissions resources

In this article we look at an energy sector influence that's often hidden, but always powerful: the wholesale energy markets (also known as Regional Transmission Organizations/RTOs or Independent System Operators/ISOs) where electricity is priced, bought and sold in many regions of the country. There are seven RTOs in the U.S.

The graphic below shows the total megawatts of new generation that has been built in each RTO since 2012 — and including what will be built through 2022 — broken out by whether it is polluting (mostly gas plants) or zero emissions (solar and wind, with a small amount of other renewables like geothermal and hydro). 

On quick glance, PJM, which serves an area providing electricity to roughly 65 million customers stretching from Illinois to North Carolina, certainly stands out. Over the 10-year period, just about as much polluting generation will have been built in PJM (52,829 megawatts) as in all the other RTOs around the country combined (56,941 megawatts). 

PJM is large, and so what makes PJM an outlier is not only the quantity of polluting capacity being built in PJM compared to other RTOs, but the relative proportion of it compared to new clean or zero-emissions capacity. Three times as much new polluting capacity (75%) has been added in PJM than clean capacity (25%). If this trend continues, emissions reductions will slow to a dribble or even reverse in PJM as its increasing reliance on gas overwhelms the climate benefit from coal closures. 

In every other RTO, the clean to dirty ratio flips. The most dramatic contrast comes from the Southwest Power Pool (SPP), where more than five times as much renewable capacity (84%) has been added as polluting (16%). And even the next closest RTO to PJM in terms of new polluting generation — ERCOT in Texas, with 31% from polluting resources— is still a stark contrast to PJM's 75% share. Texas will also build more than twice as many megawatts of renewable generation from 2012-2022 than in all of PJM, which covers portions of 11 states. 

It turns out Texas is actually the national leader in electric sector carbon emissions reduction and renewables additions. Texas has more than a quarter of the nation's total wind power, with 30 gigawatts more in the pipeline, and is poised to add a lot of solar now as well.

ERCOT routinely sees times with wind meeting half its demand or more, and its system smartly relies upon thousands of megawatts of flexible load to efficiently balance system supply and demand. On cost, the average residential electricity rate in Texas is below the national average. However, the region still lags on energy efficiency and as a consequence high consumption rates cause Texans' bills to be some of the highest in the nation, despite their smartly-designed wholesale electricity market.

Market rules have a profound effect on what type of electricity generation is built

So what's going on here? Why is significant clean energy development headway being made in some RTOs and not others, particularly not in PJM? No two RTOs are exactly comparable. There are differences in geography, renewable generation potential and local policies. But it's also clear that market structure plays a key role. 

For example, while it's true that PJM states have most of the Marcellus shale, Pennsylvania is still number two to Texas on gas production (which is seeing fast-growing gas production, too, due to new drilling in the Permian Basin). There are also areas of PJM with significant wind and solar potential, but much less development of these resources than is taking place in other RTOs.

An important distinguishing factor to examine at PJM in contrast to RTOs like ERCOT in Texas is its "capacity" market, which provides extra payments to generation owners. In PJM's capacity market, electricity suppliers get paid for promises to be available to supply power when called on to do so by the grid operator. ERCOT doesn't provide such extra payments, instead relying principally upon energy prices to encourage development of new generation. 

Each market has its own unique structure, but the implementation details matter. At PJM, the capacity market has become a tool for uneconomic fossil fuel power plants to get paid enough to stay alive rather than a tool to facilitate reliable power supply at the lowest cost from the full breadth of different energy sources that can provide it today. 

One aspect of PJM's market that ensures it is lucrative for coal and gas plants is that it has facilitated the purchase of more capacity than necessary to keep the lights on. The graph below shows the approximately 15% extra cushion of capacity PJM has been aiming to buy each year ("target reserve"), which the grid operator says is what's needed to ensure reliability. It also shows the far higher "final reserve," which is how much extra cushion of capacity is actually being delivered.

The extra totals up to billions of dollars more on customer bills because PJM has continually overestimated capacity needs and set prices far higher than the actual costs for developing new generation today. 

In addition to buying more capacity than is necessary, PJM has also implemented capacity market designs and rules that help steer payments to fossil fuel plants, supporting their maintenance and development over other types of potential capacity suppliers. A prime example of such a skew in PJM's rules is the grid operator's requirement that suppliers can only get paid for capacity they can guarantee 365 days a year.

Suppliers are barred from selling commitments for shorter periods, such as delivery of capacity for only the summer or winter months. In contrast, other regions allow for these shorter commitments, enabling companies to help meet demand by operating seasonal resources, such as programs that provide customers with incentives to turn down their air conditioning on the hottest summer days. 

PJM's year-round capacity requirement is misguided. As the graphic below shows, demand for electricity in the PJM region is different in summer than it is in winter. Since summer electricity use drives peak demand and necessitates the most capacity, PJM could make better use of cost-effective sources that are suited to meeting summer demand, including solar, demand response and energy efficiency, if these sources were allowed to offer capacity just for summer. The fact that they aren't steers more payments to fossil fuel plants even when they might not be most cost-effective, increasing both pollution and costs for customers. 

There are also other measures in the works at PJM designed to funnel customer bill payments to fossil fuel plants over zero-carbon sources, including capacity market rule changes that could effectively block most renewable energy and nuclear resources supported by states from selling capacity in PJM's market, ignoring the true capacity value that those resources supply to the system.

What we see in all these examples is that details matter and add up to a lot of influence in shaping the grid mix. Together, these factors have contributed to PJM's trajectory in building a greater percentage of polluting generation and lower percentage of clean generation than any other grid region. 

PJM and other markets could better facilitate state clean energy goals

Solutions can come in different forms, and all could be aided by more sunshine on the inner workings of our wholesale markets. For instance, states in PJM can speak up at PJM, and can seek to evolve market rules and designs that aren't facilitating climate and clean energy goals. States can also seek to develop new local policies to get around hurdles imposed by the regional grid operators. 

As we move to grids powered increasingly by renewables, demand response, efficiency and storage, these resources can and will provide the reserves and ramping flexibility traditionally served by fossil fuel power plants. It's critical for regional electricity markets to be designed in a way that efficiently integrates these resources and harmoniously interacts with state policies that encourage them (as discussed in greater depth here). 

It's a dense arena with devilish details, but our nation's electric grids and markets are critical to decarbonizing the economy. Congress, states and other policymakers must engage with FERC and the RTOs it oversees to ensure that market structures efficiently facilitate the clean energy transition.