Policy & Regulation

PJM is penalizing renewables for natural gas mistakes during Winter Storm Elliott

PJM is penalizing renewables for natural gas mistakes during Winter Storm Elliott
PJM control room (Courtesy: PJM)

PJM is on a fast-track stakeholder process, potentially penalizing renewables because of a marginal approach toward capacity credit calculations. Even though wind exceeded its expected capacity credit during Winter Storm Elliott, and solar met expectations, renewable resources will be punished under a new seasonal capacity construct at PJM. Natural gas and coal units will be penalized less than renewables, even though they contributed more than 85% to capacity on forced outage during last year’s Winter Storm Elliott.

PJM plans to move to a summer and winter seasonal capacity market construct for the 2026/27 delivery year and file this approach at the Federal Energy Regulatory Commission in October after a stakeholder vote in August.

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PJM’s Resource Retirements, Replacements and Risks (“4R Study”)

On February 24, 2023, PJM released a report on Resource Retirements, Replacements and Risks called the 4R Study. On the same day, PJM Board directed PJM staff to start a stakeholder process for capacity market reform. The key takeaway from the PJM 4R Study is that there is a risk of resource adequacy in 2030 when 40 GWs of capacity is retired. According to PJM data, 60% of that 40 GWs is coal, and 30% is natural gas.

PJM paints a “sky is falling” picture based on 25 GWs of policy-driven retirement, implying that coal plants are retiring at a fast pace due to environmental policies and regulations like Illinois Climate & Equitable Jobs Act (CEJA), EPA Good Neighbor Rule (GNR), EPA Effluent Limitation Guidelines (ELG), EPA Coal Combustion Residuals (CCR), New Jersey Department of Environmental Protection CO2 Rule and Dominion Integrated Resource Plan (IRP).

In addition to the 25 GWs of policy-driven retirements, PJM 4R Study includes 6 GWs each of deactivations and announced retirements and the remaining 3 GW of potential economic retirements. Deactivations are units going on suspension status.

PJM is concerned about this 40 GW of retirements even though 290 GW of new renewables projects are waiting to be studied in the interconnection queue because PJM is concerned that only 5% of that 290 GW – 14.5 GW has historically interconnected. PJM assigned a range for new entry wind and solar at 8 GW – 17 GW capacity. Finally, PJM is concerned about the 2026/2027 Delivery Year because at a 15% projected reserve margin, with new demand from electrification, PJM is expected to call upon Demand Response.

PJM’s Board Letter concerning coal retirements directing staff to take action

PJM’s Board is concerned about the impact of 40 GW of retirements on the capacity market. Hence on February 24, 2023, PJM Board directed PJM staff to follow a fast-track stakeholder process called Critical Issue Fast Path (CIFP) and file a new tariff at FERC by October 1, 2023. Recall the fallout from Winter Storm Elliott at PJM – where some generators are on the hook for non-performance penalties and PJM requested FERC to settle this issue, and FERC assigned an Administrative Law Judge to start that process. Potential modifications to the Capacity Performance construct are part of this CIFP process.

Also, part of this CIFP is the capacity accreditation for all resources, including renewables. This capacity accreditation is where PJM is moving towards marginal ELCC for renewables, including wind and solar.

PJM’s Board letter kicked off multiple parties sending communication to the PJM Board and PJM Board responded to each party, assuring that PJM staff will address their concerns in this CIFP process.

PJM’s Critical Issue Fast Path (CIFP) – Resource Adequacy process

PJM’s CIFP – Resource Adequacy meetings are held weekly. PJM is expected to finalize stakeholder proposals by August 1 and take a key stakeholder committee vote on August 23, according to the CIFP work plan. As is the norm, PJM’s Independent Market Monitor – Monitoring Analytics had discussed their “Sustainable Capacity Market” proposal for a seasonal capacity auction. IMM said the purpose of the capacity market is to provide hourly energy, but the energy market revenues are 10 times the cap market revenues at PJM. If energy market revenues are reduced with zero marginal cost units like renewables, then IMM expects the capacity market revenues to increase.

IMM said the capacity market reform concerns reliable energy, not reliable capacity. IMM believes that in the delivery year, it is essential to pay for capacity only when it is available to produce energy. IMM said performance equals availability for renewable resources, but IMM has not spelled out what availability is.

Unlike MISO which clears 4 seasons in one annual auction, PJM plans to retain the 3-year forward Reliability Pricing Model capacity auction with the change to summer and winter seasons. Since most resource adequacy risk is in summer and winter, this is a better choice for PJM.

PJM’s Marginal Effective Load Carrying Capability (ELCC) calculation

PJM presented (slide 8 here) initial capacity accreditation values for all resource classes except for demand response at their July 17 CIFP meeting. Not surprisingly, using the marginal ELCC method, the wind has only 9% capacity credit in summer and 36% in winter. Solar received 19% in summer and 2% in winter compared to the current 30% in the 2025/2026 Baseline Residual Auction. Surprisingly, even though there was much concern raised after Winter Storm Elliott regarding natural gas unit’s performance and non-performance penalties, PJM has not factored in planned and maintenance outages for fossil units in this initial capacity credit calculation leading to more than 90% capacity credit for most units in summer and a range of 60-80% in winter.

On July 17, PJM released its Winter Storm Elliott report, which showed that wind performed well above its expected capacity levels and solar met “or exceeded its capacity expectations during a few hours each afternoon, which was not coincident with the peak electric demand periods.” For the 2022/2023 Delivery Year, the capacity credit under the current average ELCC methodology was 13% for wind and 38% for solar, but if PJM had adopted marginal ELCC during Elliott, then the wind would have 36%, and solar would have 2% capacity credit.

PJM’s Winter Storm Elliott report also notes that out of 46,959 MW capacity on forced outage on December 24, 2022, before Christmas, 33,404 MW was natural gas capacity. So, 71% of the total forced outage capacity was natural gas. Coal is another 15% of forced outage capacity. Hence, both natural gas and coal comprised 86%, but that is not reflected in the marginal capacity credit calculations that PJM showed during the July 17 CIFP meeting. That should cause worry for renewable energy advocates and proponents of the capacity market who want a fair capacity accreditation process for all resource technologies.