By Rory D. Sweeney
VALLEY FORGE, Pa. — PJM’s initiative to revise how its energy market is constructed continued down the rabbit hole last week with a complex discussion about the timing of procuring reserves.
At Wednesday’s meeting of the Energy Price Formation Senior Task Force, the Independent Market Monitor’s Catherine Tyler suggested revising the operating reserve demand curve (ORDC) to compare the value of purchasing reserves now to fill potential shortages later versus purchasing them later during the peak hours of the day.
Tyler explained that this level of analysis could determine the value of reducing the probability of a reserve. Hung-po Chao, PJM’s chief economist, agreed the idea merits consideration and that “the PJM team has been struggling with that” idea.
FirstEnergy’s Jim Benchek questioned the Monitor’s assumption that the relationship between the price for reserves now and the price for reserves later would be linear.
“That seems like a pretty big leap of faith,” he said.
PJM’s Patricio Rocha-Garrido explained the RTO’s justification for its recommendation of a 30-minute reserve product, which he said would account for all the time necessary to dispatch a resource and have it be ready to operate if necessary. Security-constrained economic dispatch (SCED) cases are solved 10 minutes prior to being implemented, and units that are assigned reserves have 10 minutes after a case is implemented to be online, so that accounts for 20 minutes, Rocha-Garrido said. The additional 10 minutes would cover SCED cases that are completed up to 14 minutes ahead and the additional output assigned units could provide past their assignments, if not for their ramping constraints.
The justification didn’t satisfy Tyler.
“It kind of sounds like fudging the numbers more than it’s based on anything,” she said. “You are increasing the looking forward time span such that there is more forecast uncertainty, increasing the probability of a shortage and therefore the price.”
“Obviously, I wouldn’t describe it in those terms,” Rocha-Garrido said. “We’re trying to capture the mathematical value … and not dismiss it completely.”
PJM’s Anthony Giacomoni provided market simulations using the RTO’s proposed revisions, which would consolidate Tier 1 and Tier 2 synchronized reserves and implement a downward-sloping ORDC. The simulations found that a net annual increase of $250 million to $800 million in load costs would be shifted from other areas, such as uplift, into the energy market, creating a $1 billion annual increase in energy market revenues.