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FERC Approves Change in PJM Capacity Market Seen as Increasing Costs $1.8 Billion Over Two Years
FERC accepted as filed by PJM tariff revisions for the capacity market which will now limit the amount of certain demand response resources which are procured.
The impact of the change will be an estimated $1.8 billion increase in capacity costs over two years, consumer advocates had said in protests of the filing.
In response to this criticism, FERC laughably said that, "we agree with PJM that additional generation resources clearing the capacity auction under PJM's proposal would unlike demand response that does not participate in the energy market until an emergency event occurs, contribute more energy in the energy market, which in turn would tend to place downward pressure on energy prices."
If recent events have taught us anything it's that:
• Generation in no way should be thought of as assuring more energy production/availability (see 40% forced outage rate during recent PJM emergencies)
• For generation which is available, it may not necessarily be below demand response dispatch costs (see desires to eliminate $1,000/MWh offer cap)
These two recent experiences should cast doubt on any arguments that additional generation procured in a capacity auction will somehow, in the future, lead to lower energy prices (a claim persistently being made in ERCOT as well).
Specifically, FERC accepted PJM's tariff changes to change the process by which resources clear in PJM's capacity auction, such that limited-availability demand response will only be allowed to clear up to a predetermined ceiling. Specifically, PJM will now cap the amount of Limited Demand Response at 4 percent of PJM's reliability requirement, and will cap the aggregate amount of Limited Demand Response and Extended Summer Demand Response at 10 percent of PJM's reliability requirement.
PJM will implement two procurement caps: first, a Limited Resource Constraint (which will apply to Limited Demand Response); and second, a Sub-Annual Resource Constraint (which will apply to the sum of Limited Demand Response and Extended Summer Demand Response). Both constraints will rely on PJM's existing reliability targets for Limited Demand Response and Extended Summer Demand Response, i.e., on the maximum amounts that can count towards PJM's reliability requirement with an acceptable level of risk
PJM will also make an adjustment relating to its currently-effective Short-Term Resource Procurement Target, the portion of PJM's overall reliability requirement (2.5 percent) that PJM is required to hold back from its annual Base Residual Auction to allow for the subsequent procurement of limited-availability demand response products in PJM's incremental auctions.
Currently, PJM applies this hold-back by subtracting it from its overall reliability requirement (not from its two procurement floors). Under the changes adopted by FERC, PJM will subtract the entirety of this hold-back from its Limited Demand Response cap.
Docket ER14-504
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January 31, 2014
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Reporting by Paul Ring • ring@energychoicematters.com
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