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Admit: Current PJM Capacity Market Performance Standards Do Not "Ensure Operational Reliability"
Events of last winter have made obvious what critics of capacity markets have long-stated, and have forced PJM, in a draft problem statement published Friday, to concede that, "the current set of performance incentives and penalties for Capacity Resources does not sufficiently address all that is required to ensure that operational reliability will be maintained through all seasons."
Remember, this is the capacity market design which was the most mature, the most tested, and which was ready to "bolt on" to the Texas market to keep the lights on.
What more needs to be said?
"[T]he current requirements for resources to be considered a Capacity Resource do not appear to sufficiently address the observed generation performance issues, winter peak operations issues and operational characteristics that are needed to ensure that system reliability will be maintained through the industry transformation that is occurring," PJM said.
Despite capacity payments ostensibly designed to ensure plants are available, PJM cited as a problem, "Reductions in staff at some generation sites to minimize costs have negatively impacted the operational flexibility and availability of some resources."
While in an energy-only market, generators are harshly penalized for non-performance by missing one of the potentially few scarcity pricing events of the year, the fixed capacity payments in PJM make decisions such as reducing staff economic, given the weak performance penalties in the capacity market.
Under current rules, penalties are only incurred if the forced outage rate during peak hours (EFORp) is greater than the 5-year average forced outage rate (EFORd) of the resource. Moreover, outages Out of Management Control (OMC) are not to be included in these outage figures for calculating EFORp. Failures due to non-availability of gas to supply are also excused
PJM noted, "the penalties for being unavailable during the pre-defined peak hours more than the 5-year average EFORd provides no incentive to make investments in O&M or infrastructure to enhance availability since there is little risk of incurring a capacity market penalty for being unavailable during reliability critical events. Given this low risk, there is no reason for the generation owner to make such investments."
"[T]here is an incentive to try and characterize as many outages as OMC as possible since OMC is excused from the EFORp calculation, and provides an incentive for generation owners to hide the real cause behind an outage, or to shift the cause of an outage to a third party such as a gas pipeline. And in general, in almost all cases lack of fuel is not OMC as the choice of gas transportation or oil delivery arrangements, installation of dual fuel, and gas interconnection to an interstate pipeline or behind an LDC city gate are business decisions well within the control of the generation owner," PJM said.
See PJM's Problem Statement for more
ADVERTISEMENT Copyright 2010-
August 4, 2014
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Copyright 2010-14 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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