UPDATE: March 7, 2022: The PJM Interconnection’s board on Friday rejected a request it bar some renewable energy resources from the grid operator’s upcoming capacity auction.

Dismissing claims by the PJM Power Providers Group, the board said PJM correctly follows its rules when determining how much capacity renewable energy resources can deliver to the grid.

PJM will soon begin a process to consider applying its “effective load carrying capability” methodology to thermal power plants, according to the board. PJM uses the methodology to determine how much capacity renewable resources can provide. Renewable energy advocates contend there are times, such as during winter peak periods, when there are correlated outage risks for fossil-fueled power plants. PJM doesn’t include those risks in its assumptions of how much capacity the plants can provide, according to the advocacy groups.

Dive Brief:

• In separate letters, environmental and clean energy trade groups on Monday urged the PJM Interconnection's board to ignore a request by a trade group for power plant owners that some renewable energy resources be barred from an upcoming capacity auction.

• The request earlier this month by the PJM Power Providers Group (P3) is an "extreme and unjustified" effort to intervene in PJM's capacity market, American Clean Power Association, Advanced Energy Economy and the Solar Energy Industries Association said.

• P3's request to remove some intermittent renewable generation from the capacity auction is a sign "the regulatory winds" are turning against gas-fired generators in the PJM region, according to Tom Rutigliano, an Natural Resources Defense Council (NRDC) senior advocate. "There was a bubble in gas investment and the bubble is popping now," Rutigliano said.

Dive Insight:

P3, which represents power providers like Calpine, NRG Energy and Vistra Energy, is increasingly concerned about the viability of PJM's capacity market because of recent steps taken by the grid operator and the Federal Energy Regulatory Commission, according to the group's letter to PJM and a Jan. 31 filing at FERC.

PJM typically holds annual capacity auctions to make sure it has adequate power supplies three years in the future. PJM, which runs the grid in 13 Mid-Atlantic and Midwest states and the District of Columbia, held a capacity auction in May after a three-year delay and is preparing to hold another one in June 2022.

In its letter to PJM's board, P3 said the grid operator is awarding renewable energy generators capacity obligations for "hundreds of MWs" that cannot be delivered because of a lack of transmission capacity.

"The only logical remedy under the circumstance is to remove these MWs from the supply stack for the 2023-24 planning year as well as subsequent auctions, until these resources are physically deliverable in the same way required of every other resource in the PJM system," P3 said.

PJM can make the change ahead of its next auction without FERC approval, according to P3.

The clean energy trade groups urged PJM's board to dismiss P3's request. "The likely result would be to increase capacity clearing prices, to the benefit of existing thermal generators in PJM, and to the detriment of customers," they said.

In their letter to PJM's board, the environmental advocacy groups said the grid operator has been using the same process for establishing the capacity value of intermittent wind and solar resources since at least 2010. That process is included in PJM's "effective load carrying capability" methodology, which is used to set a capacity value for renewable and energy storage facilities and was approved by FERC in July, the groups noted.

"The commission has both specifically endorsed PJM's approach as adequately accounting for transmission constraints and rejected arguments, such as those espoused in P3's letter, that additional adjustments to the capacity value of intermittent resources to reflect transmission constraints are necessary," the groups said.

Two PJM committees are considering transmission needs for generators' deliverability, according to the groups.

"P3 should not be bringing an alarmist letter to the board now while these discussions are addressing the whole set of needs and possible reforms, nor should it attempt to disguise its members' commercial interests as reliability issues," the groups said.

The owners of natural gas-fired power plants in PJM's footprint are feeling pressure as the grid operator's rules are undergoing changes, including a rollback of an expansive minimum offer price rule (MOPR), according to Rutigliano.

The expanded MOPR would have protected fossil-fueled power plants from competition from renewable energy facilities that were supported by state policies, Rutigliano said.

PJM has consistently acquired more capacity than it needs, leading to a glut of gas-fired power plants, Rutigliano said, pointing to a 2020 report prepared for NRDC and Sierra Club.

The grid operator, for example, had a 15.5% percent target reserve margin – an amount above the expected peak need – for the 2020/2021 capacity year auction, but ended up with a 29.1% reserve margin, or roughly 18,700 MW more than needed, according to the report.

Generally, the oversupply should suppress capacity prices, but PJM and FERC took measures, such as adopting a strict MOPR, that aimed to prop up prices, Paul Patterson, an equity analyst at Glenrock Associates, said.

"You've had a considerable amount of new entry showing up in a market that's oversupplied by PJM's own metric," Patterson said.

In part, PJM buys too much capacity because its demand forecast is consistently too high, according to Patterson.

"They've set up a situation in PJM, where they've effectively done all sorts of things to encourage new generation, and they have for some time, and any effort to rectify that is going to be more painful than if they'd never done it to begin with," Patterson said. "Eventually, there's going to be a reckoning and it's not going to be pleasant for generators."