PJM kicks off capacity market reform process with focus on reliability metrics

PJM Interconnection and its stakeholders Nov. 29 highlighted potential focus areas that could be undertaken to improve the capacity market amid significant resource mix changes, having identified 10 key work activities from evaluating a forward clean energy market to updating reliability metrics.

PJM staff presented the grid operator's priorities for the capacity market during a remotely held Resource Adequacy Senior Task Force meeting.

PJM's initial priorities focus on reliability and ensuring "risk assessment reasonably captures scenarios of concern" with reliability metrics reflecting desired reliability across scenarios, according to the presentation.

Capacity resources need attributes to meet summer and winter risks, they must be valued according to their system reliability contributions and ensure capacity resources can offer into the market at levels consistent with their economic costs of providing capacity products, PJM said.

The grid operator will also explore opportunities for regionally procuring clean resource attributes.

The recent Federal Energy Regulatory Commission/North American Electric Reliability Corporation report on the February 2021 cold weather event that led to massive power failures in Texas and neighboring regions provides recommendations that focus on winter reliability that are relevant to the capacity market discussion, PJM said.

Winter reliability

Additionally, exposure to winter reliability events in PJM "merits a closer look" to ensure market elements support desired reliability levels across all scenarios.

Extreme events may be difficult to estimate, "but we should do our best to plan for them," PJM said, adding that reliability metrics and targets should reflect going-forward preferences, not historical standards.

Winterization and/or fuel security standards might be needed for all or a portion of the capacity portfolio to handle winter risks and the capacity market must be able to enforce these requirements and provide market incentives to make needed investments, according to the presentation.

"Capacity performance incentives can be improved to provide stronger, clearer, incentives during reliability events," PJM said. Specifically, under current rules:

• A significant number of capacity performance excusals are granted
• Performance penalty/incentive rates are based on assumptions that have not proved true
• Signals from capacity performance and energy prices may not align

It is also important to make sure capacity resources can offer into the market at levels consistent with the economic costs of providing capacity because reliability is threatened when economic resources retire or are not built, PJM said.

"If market participants are prevented from reflecting their economic costs and risks in capacity market offers, misalignment between supply/demand fundamentals and market outcomes could cause downward pressure on market prices and lead to uneconomic retirements," the grid operator said.

Regional clean resource attribute procurement through a competitive process could help reduce costs to consumers to meet decarbonization goals, but PJM believes that the implementation of the social cost of carbon in PJM's markets would require state or federal regulatory action.

According to a draft guidance document, or issue charge, the Resource Adequacy Senior Task Force's capacity market review will be holistic, but the solution for any of the above topics may be advanced to a vote alone or in conjunction with other topics.

Check-ins will be scheduled to see if any proposed solutions should be advanced for an earlier implementation date, according to the draft issue charge.

"Initial discussion, education and assessment will begin immediately," PJM said, and it is expected that all RASTF work will be completed by the fourth quarter of 2023 in time to be implemented by the 2027/2028 base residual capacity auction to be held in May 2024.

However, any solution to a "germane topic area or group of areas" may be advanced earlier than that as decided at the scheduled check-ins, PJM said.

The RASTF is expected to meet monthly.