Electricity Markets

PJM Begins Expedited Process for Reform of Capacity Auction

PJM Interconnection and its stakeholders have begun an expedited process to address capacity market design issues related to maintaining resource adequacy.

The PJM Board implemented the Critical Issue Fast Path process by letter on Feb. 24, citing a PJM report, Energy Transition in PJM: Resource Retirements, Replacements and Risks.

The letter noted that while PJM “currently has a healthy reserve margin, Winter Storm Elliott demonstrated that PJM is not immune to reliability challenges as the system was stressed, even with a reserve margin in excess of the target and a lower level of renewable penetration than other regions.”

Although PJM maintained grid reliability throughout Winter Storm Elliott, “we believe this event demonstrates a need to focus on PJM’s rules and processes to ensure reliability is maintained both now and throughout the transition,” the letter said.

PJM has “healthy reserve margins,” but that “cannot be taken for granted into the future,” PJM said in the letter, noting that up to 40 gigawatts of capacity in the regional transmission organization, whose territory includes a large swath of Mid-Atlantic and Midwestern states, is at risk of retirement by 2030.

The PJM report also highlighted “significant uncertainty around the pace of resource additions, which at current completion rates would be inadequate to maintain resource adequacy.” In addition, the potential also exists for “significant load growth in the future, driven by data center additions and electrification of transportation, heating and industry,” PJM said.

In initiating the Critical Issue Fast Path process for resource adequacy, PJM’s board of directors identified four areas for stakeholders to focus on in the CIFP process:

  • improvements in the way PJM accounts for winter risk and correlated outages in reliability planning,
  • evaluation of changes to PJM’s capacity performance construct to ensure market seller offers may properly reflect the risk of taking on a capacity obligation,
  • enhancement of resource accreditation to ensure resource reliability attributes are accurately determined and compensated, and
  • means of ensuring comparable treatment of resources by aligning capacity market changes with appropriate adjustments to PJM’s Fixed Resource Requirement.

These areas are considered as “must haves,” Adam Keech, PJM vice president of market design and economics, said during a Feb. 28 meeting of PJM’s Resource Adequacy Senior Task Force. “These will be the centerpiece of the PJM proposal,” Keech said, adding, “the board is open to solutions across the spectrum that align with their objectives.”

This fast-track process will inform a decision by PJM’s board by late summer, and the organization aims to file its proposal with the Federal Energy Regulatory Commission on Oct. 1.

Capacity auctions normally occur three years before the capacity delivery date, but the reforms under way in PJM have caused delays for several capacity auctions. PJM hopes to have its capacity auction schedule back on track for the 2027/2028 auction, which is now scheduled for May 2024, but PJM’s board is seeking stakeholder feedback on whether prior year auctions that have not been run, the 2025/2026 and 2026/2027 auctions, should be adjusted or pushed back.