PJM Committee Advances Electricity Capacity Market Proposals
April 04, 2016
Last month, the PJM Interconnection's Market Implementation Committee advanced proposals related to capacity performance, agreeing to add three items to the list of parameters by which a resource’s schedule might be limited. This was the latest step in an ongoing effort by PJM to ensure grid reliability in the United States’ largest competitive wholesale electricity market, and includes new considerations for maximum run time, start-up time, and notification time of participating capacity resources.
PJM’s forward capacity market ensures long-term reliability by procuring power supply resources needed to meet predicted energy demand three years into the future. End-users in the PJM market, including those in Maryland, New Jersey, Ohio, Pennsylvania, and the District of Columbia, pay their share of the associated capacity obligation based on individual contribution toward the overall peak demand on the system. That is to say, PJM measures an end-user’s peak demand during a select period each summer and applies a capacity charge based on that peak volume during the following year.
Last summer, the Federal Energy Regulatory Commission approved a significant restructuring of PJM’s forward capacity market, most notably increasing reliability expectations for participating generation resources. The “no excuses” model will result in greater revenue streams for capacity resources that over-perform and will require higher penalty costs for resources that under-perform or fail to perform entirely when called upon. While PJM’s new plan should contribute to greater overall reliability in times of strain on the system, it is also supportive of higher capacity prices. Accordingly, the first capacity auction following approval of the new plan saw prices rise 37% for most of the PJM territory.
While the most recent action from PJM’s Market Implementation Committee was relatively insignificant in terms of impact to end-users, it serves as a reminder that the period for setting upcoming capacity charges is right around the corner. Peak electricity demand levels achieved from 3:00 to 6:00 PM EST on weekdays in June through September will impact customer costs during the following planning year (June 1, 2017 through May 31, 2018). End-users have the ability to reduce exposure to future capacity charges by actively managing demand levels over the coming months.
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