Stakeholders last week encouraged PJM to take a more active role in facilitating carbon pricing as more states look to join the Regional Greenhouse Gas Initiative (RGGI).

Marji Philips, LS Power vice president of wholesale market policy, suggested that PJM should support a FERC technical conference that would bring together state regulators, stakeholders with RGGI experience, other RTOs and supply-side groups. LS Power is part of a coalition of independent power producers and renewable energy and trade groups that petitioned FERC last month to convene a technical conference on integrating carbon pricing into organized wholesale markets (AD20-14). (See IPPs, Renewable Groups Seek FERC Carbon Pricing Conference.)

Philips said PJM can support a technical conference without endorsing carbon pricing and help states achieve their environmental goals without having a uniform carbon price.

“PJM’s always been a leader in advocating that markets drive reliability,” Philips said during the Carbon Pricing Senior Task Force’s May 19 meeting, its seventh meeting since its formation last summer. “Now is not the time to abdicate that leadership by not participating in something like this.”

Market Monitor

John Hyatt of Monitoring Analytics recommended PJM “provide a full analysis” of the impact of carbon pricing on generating units and the revenues that would result to allow “states to consider a potential agreement on the development of a multistate framework for carbon pricing and the distribution of carbon revenues.”

The Market Monitor said a $10/metric ton carbon price would increase short run marginal costs by $3.34/MWh (24%) for a new combined cycle plant and $8.63/MWH (31%) for a new coal plant. For 2019, that would have increased LMPs from $27.32/MWh to $30.71/MWh, a 12% rise, based on the impact on the marginal units’ offer prices (not including a counterfactual redispatch of the system).

A $50/ton price would boost combined cycle plants’ costs by $16.72/MWh (122%) and coal plants by $43.15/MWh (156%).

The Monitor said a $10/ton carbon price would generate $3.6 billion annually in carbon allowance revenues in PJM states.

The current patchwork of state policies has resulted in wildly varying renewable energy credit (REC) prices within PJM, with an implied carbon price ranging from $5.63/ton to $19.21/ton in 2019. Solar REC prices last year ranged from an implied price of $50.23/ton to $806.35/ton, the Monitor said.

The Monitor said the varying REC prices are “inconsistent with an efficient market and inconsistent with the least-cost approach to meeting state environmental goals.”

“Using an RGGI model would leave carbon pricing within the control of the states and not of FERC or PJM,” said Monitoring Analytics President Joe Bowring. “States could define the desired carbon price. The carbon price would simply be part of the short-run marginal cost of operating units in PJM and treated like fuel or other emissions costs.”

Vistra Energy

Becky Robinson of Vistra Energy said her company needs a supportive market policy to achieve its emissions goals. Vistra has announced a goal to reduce CO2-equivalent emissions by more than 50% by 2030 and by 80 to 100% by 2050 from 2010 levels.

She said a national, economy-wide price on carbon with dividend payments to help alleviate the rise in energy costs would be the best solution. But she said discussions like the ones happening in the senior task force are a step toward developing a fix.

“We are definitely a believer in the power of economics to change markets and to drive change in the resource mix,” Robinson said.

Disparate state policies regarding clean energy have left states wishing to act on carbon stymied by leakage with the dispatch of cheaper fossil-fuel generated power in non-participating states, she said. FERC rulings that expand the minimum offer price rule (MOPR) to cover state-subsidized generation have also undermined state efforts, causing some states to contemplate exiting PJM’s capacity market. (See NJ Regulators Weighing Input on Capacity Market Exit.)

Vistra wants states to have an in-market clean energy policy option that would not be penalized by MOPR, Robinson said, and is open to sub-regional border adjustments or other market changes empowering state policies.

Robinson said the modeling presented by PJM so far has been “inconclusive” on the best border adjustment method, noting that emissions impacts differ depending on the configuration of participating states. RGGI currently includes New York, the six New England states and three PJM states: Delaware, Maryland and New Jersey. Virginia is also poised to join by the beginning of 2021, and Pennsylvania Gov. Tom Wolf issued an executive order in October directing state officials to develop a rulemaking by July 31 for joining the compact. (See Critics: Pa. RGGI Hearing Stacked with Detractors.)

During the May 19 task force meeting, PJM presented an updated study on carbon pricing and potential leakage mitigation mechanisms, expanding on another report issued March 27.

Robinson said the studies show that without border adjustments, carbon pricing works better as the pricing footprint gets bigger.

The reports found that with the Maryland, Delaware and New Jersey footprint in RGGI, carbon pricing alone increases net emissions in PJM while border adjustments decrease net RTO emissions. With RGGI expanded to Virginia and Pennsylvania, carbon pricing alone decreases net RTO emissions, while border adjustments increase net RTO emissions. (See PJM Panel Weighs Impact of Pa., Va. Joining RGGI.)

“If what you care about is emissions, it’s not clear that border adjustments are a good thing or a bad thing,” Robinson said. “It’s very case specific.”

Jason Barker of Exelon asked Robinson what solution Vistra recommended the task force consider, noting the group’s problem statement and issue charge call for examining border adjustments and leakage mitigation.

Robinson said coming up with a “mutually agreeable solution” for all interested stakeholders should be the goal of the task force. For the states that are not interested in carbon pricing, there should be a mechanism for quantifying the incremental value of carbon pricing. The results should be presented to all the states in PJM to determine if the value outweighs the cost.

LS Power

Philips gave a presentation for LS Power, the second largest privately held generation company in the PJM market with more than 11,000 MW of capacity. She said LS Power remains “technology neutral” when it comes to generation — with resources including pumped storage, solar and natural gas combined cycle facilities — and continues to invest where price signals are transparent.

PJM’s competitive market structures have allowed for ongoing investment opportunities that provide consumer benefits, Philips said, and the adoption of transparent carbon pricing within the RTO would continue to provide opportunities for investment and innovation.

“We want the markets to work so we can make investments in a renewable portfolio as well as everything else,” she said.

Barker asked Philips what LS Power would like to see the task force accomplish.

Philips said she supports requests for more data from PJM on the cost and revenue impact to states and would also back Vistra in considerations about how border adjustments could and could not work.

The open-ended nature of the task force charter allows for broad discussions in search of solutions and could bring more changes if stakeholders actively encouraged input from state commissions and legislators, she said. PJM’s markets have already driven change to policy and will continue to bring innovation.

“What PJM has done already in terms of driving down emissions is remarkable. And they’ve maintained regional reliability while doing it,” Philips said. “Obviously, we wish everybody would embrace a carbon price because that would solve a lot of problems. But recognizing that’s not going to happen at this point, we’d at least like to keep the ball moving and get as much of these externalities into the market and priced appropriately.”

Exelon

Kathleen Robertson, director of strategic initiatives and environmental policy for Exelon, said PJM should immediately begin to develop border adjustments for RGGI, which is anticipated to cover the majority of PJM load by 2022.

Exelon’s modeling assumed all RGGI generators have carbon costs included in their bids. Offers from non-RGGI generators would not include carbon, costs but power flowing from a non-carbon region to a carbon region would be subject to an additional wheeling cost.

Robertson said Exelon’s analysis concluded that well-designed border adjustments preserve efficiencies of regional energy markets and reduce emissions while preserving state policy choices.