Reserve market prices in eastern PJM are likely to drop in June as PJM implements a new model for calculating interface transfer capabilities.
Adam Keech, PJM director of wholesale market operations, said that the new model will allow resources in western PJM to deliver up to six times more synchronized and primary reserves to eastern PJM than in the current “overly conservative” model.
Fewer eastern reserves will be called on as more reserves from the west — which has a surplus — are delivered to the east. As a result, Keech told the Operating Committee last week, “The market value of reserves in the Mid-Atlantic and Dominion zone is likely to be reduced.”
Until PJM implemented Shortage Pricing last October, markets were cleared an hour ahead of the operating hour, causing operators to use conservative assumptions on interface congestion. With reserve market clearing now done in real-time, the old models are sometimes falsely predicting shortages in the Mid-Atlantic zone, Keech said.
“At times, [operators] are doing what the software says. At times they don’t because they know it doesn’t make sense.”
Because some operators follow the software more closely than others, Keech later told the Market Implementation Committee, “it’s tough to gauge what the impact [of the change is] going to be.”
The limiting reserve interface between west and east is usually Bedington-Black Oak or AP-South. Cases run by PJM on AP-South indicate that it has a distribution factor of only 17%, meaning that 6 MW can be loaded in the west for every 1 MW available on the interface. The current model assumed a distribution factor of 100% — as if AP South were the only line connecting the west and east regions.
Because the distribution factor depends on the location of the generators providing reserves and the load served, it will change with system conditions.
The transition is expected to begin by early June. Keech said PJM will phase in the switch, starting with a distribution factor of about 50% to test the new assumptions. “We’re not going to step all the way off the cliff in one fell swoop,” he said. “We want to be careful we don’t create any operational problems.”
