Dive Brief:

• The PJM Interconnection on Friday started a fast-track stakeholder process to bolster its capacity market following widespread power plant outages during Winter Storm Elliott and a report showing the grid operator could face narrow reserve margins in 2028.
• The PJM board, in a letter to stakeholders, directed the grid operator’s Resource Adequacy Senior Task Force to consider ways to improve risk modeling, especially for the winter; enhance accreditation so a resource is paid in line with its reliability contribution; and ensure that capacity suppliers are fully paid for the risks they take.
• PJM’s board aims for any proposed changes to be filed with the Federal Energy Regulatory Commission on Oct. 1. The board asked PJM management to consider delaying future capacity auctions so they could include any changes.

Dive Insight:

The board’s letter was released the same day PJM issued a report indicating the grid operator faces growing reliability risks as power plant retirements and load growth are on track to outpace the addition of new generating resources.

About 40 GW, or 21% of PJM’s installed capacity, is at risk of retiring by 2030, according to the report. At the same time, the grid operator expects its load will grow by 1.4% a year.

Although about 290 GW is in PJM’s interconnection queue — mainly renewable and energy storage-hybrid projects — the grid operator expects only 15.1 GW to 30.6 GW of accredited capacity, which is less than nameplate capacity, to come online by 2030.

“The potential for an asymmetrical pace in the energy transition, in which resource retirements and load growth exceed the pace of new entry, underscores the need to enhance the accreditation, qualification and performance requirements of capacity resources,” PJM said in the report.

Under a “low” new entry scenario, PJM expects its reserve margin will plunge to 8% in 2028 and 5% in 2030, down from 23% this year. If generation comes online at a faster pace under a “high” new entry scenario, the reserve margin would fall to 16% in 2028 and 15% in 2030. Reserve margins could be even tighter if people switch to electric vehicles and electric heating at an accelerated rate, according to the report.

“The amount of generation retirements appears to be more certain than the timely arrival of replacement generation resources, given that the quantity of retirements is codified in various policy objectives, while the impacts to the pace of new entry of the Inflation Reduction Act, post-pandemic supply chain issues, and other externalities are still not fully understood,” PJM said.

The study’s findings highlight the importance of ongoing stakeholder initiatives on resource adequacy, regional clean energy procurement and the interconnection process, as well as efforts between PJM and state and federal agencies to manage the reliability effects of policies and regulations, staff said in the report.

“As I have been saying in recent concurrences … we need to look at the big question whether the PJM capacity market can still deliver reliability at just and reasonable rates,” FERC Commissioner Mark Christie said Friday on Twitter in response to the report.

Earlier this month, FERC said it planned to hold a forum to review PJM’s capacity market.

PJM and its 13-state region have options for addressing its reliability risks, according to Tom Rutigliano, senior advocate at the Sustainable FERC Project, which is housed at the Natural Resources Defense Council.

They include continuing to improve the interconnection process, reducing barriers to new transmission between neighboring regions, and states taking a proactive role in assuring resource adequacy, such as by directing energy storage to be built at retiring power plants, he said Friday.

PJM should proactively plan transmission like the Midcontinent Independent System Operator’s multi-value project, or MVP, process for regional transmission planning, according to Rutigliano. That process led to the Long-Range Transmission Planning tranche 1 set of power lines that aim to address future reliability needs.

The PJM’s offshore wind interconnection study represents the beginnings of that type of planning, he said.

“We have five years warning here,” Rutigliano said. “There's certainly no time to waste, but that is enough time for PJM to come up with some MVP-light or focused-MVP transmission plan to deal with these issues.”

The report’s results aren’t surprising, according to Glen Thomas, PJM Power Providers president. “Reliability will be compromised when demand is increasing and state and federal policies are actively promoting the retirement of resources that are needed to maintain reliability,” he said in an email Monday.

PJM and FERC have been undermining the capacity market, such as by the commission’s order approving changes to the grid operator’s market rules in the middle of an auction, he said.

“That represents a direct threat to reliability and will cost consumers more money than they should be paying for that reliable supply of power,” Thomas said.

Meanwhile, the Resource Adequacy Senior Task Force on Tuesday will discuss a proposal by Monitoring Analytics, PJM’s market monitor, on a “return to basics” capacity market plan that includes requiring capacity resources to have firm fuel, including dual fuel or multiple pipelines and a firm commodity supply. Intermittent, storage and demand-side resources must also be firm, according to the proposal.

PJM’s “capacity performance” framework is a failed experiment, the market monitor said, pointing to the high power plant outage rate during Winter Storm Elliott in December.

“There is no reason that in a rational market design, two cold days would result in a crisis and a level of administrative complexity that threatens to undermine the incentives to invest in existing and new supply resources at a time when those resources are needed,” the market monitor said.