Dive Brief:
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The PJM Interconnection would stop including energy efficiency resources in its capacity auctions under a proposal the grid operator filed with the Federal Energy Regulatory Commission Friday.
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There is no evidence that capacity market payments for energy efficiency resources directly spur efficiency projects, PJM said, noting that the plan to remove such resources from its capacity auctions was approved last month in a stakeholder process. Also, consumers that install energy efficiency measures already benefit from reduced capacity costs through a lower peak load obligation from cuts in energy use, according to the grid operator.
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“End-use customers installing energy efficiency measures and other customers who are forced to subsidize those efforts are realizing no discernible incremental benefits from energy efficiency resources that receive capacity payments,” PJM said.
Dive Insight:
Monitoring Analytics, PJM’s independent market monitor, has advocated for removing energy efficiency resources from the capacity market for years and, based on additional experience, the grid operator and a sector-weighted super majority of its stakeholders now agree, PJM said.
PJM includes the effects of energy efficiency in its peak load forecasts, which determines how much capacity it buys, according to the grid operator.
“Additional compensation to energy efficiency resource sellers through the [capacity] auctions for the same underlying energy efficiency is duplicative and leads to the energy efficiency simultaneously participating on both the supply and demand side in the capacity market,” PJM said.
PJM is set to pay $144 million in capacity payments for energy efficiency resources in the 2025/26 delivery year, up from $128 million in the previous delivery year, according to the grid operator. About 89% of the payments for the current delivery year are going to non-utility energy efficiency providers, according to a PJM presentation on its proposal.
PJM has made capacity payments for energy efficiency resources since 2009, but they are no longer needed, according to the grid operator.
“New, more efficient technologies and practices have and will continue to emerge without wholesale capacity payments by PJM loads,” the grid operator said. “Indeed, states continue to adopt increasingly strict building codes. Most of the energy efficiency in PJM is either a result of customers responding to market prices reflected through their retail energy bills or already incentivized through various federally- and state-regulated programs.”
PJM asked FERC to approve the proposal by Nov. 6 in advance of its next capacity auction set to begin on Dec. 4.
If FERC approves the proposal, it would resolve pending complaints at the agency by the market monitor and a group of state ratepayer advocates, according to PJM, which operates the grid and wholesale power markets in 13 Mid-Atlantic and Midwest states and the District of Columbia.
Opponents of PJM’s proposal include state ratepayer advocate offices, Public Service Electric and Gas, Monongahela Power, Southern Maryland Electric Cooperative, Tangent Energy Solutions, Enel X North America and NRG Business Marketing, according to a report on the voting results.
