By Rich Heidorn Jr.

PJM’s expanded minimum offer price rule (MOPR) won’t hinder renewables as much as some had feared if the RTO’s interpretation of FERC’s Dec. 19 order is accepted by the commission, according to solar and wind trade groups and a new analysis by the Independent Market Monitor.

The Monitor released an analysis Friday that concluded that expanding the MOPR will not have an impact on clearing prices or auction revenues for the next Base Residual Auction, for delivery year 2022/23. That came after the American Wind Energy Association (AWEA) and the Solar Energy Industries Association issued upbeat reviews of PJM’s compliance filing Wednesday. (See PJM Makes MOPR Compliance Filing.)

FERC ordered PJM to expand the MOPR to all new state-subsidized resources, including nuclear plants and renewables. AWEA was among numerous critics of the ruling, saying it “threatens states’ rights and hinders their ability to bring more clean energy to their communities.” The Sierra Club called it “disastrous,” saying it will “essentially exclude new renewable energy resources from the PJM capacity market.”

But AWEA and the Solar Energy Industries Association said last week that PJM’s interpretation of the order would allow new renewable generation to clear the capacity market in the short term.

PJM’s conclusion that voluntary renewable energy credits (RECs) are not state subsidies and its decision to allow an asset life of up to 35 years means that new wind and solar projects will be able to bid below the default MOPR floor values and clear the market, officials for the organizations said.

“PJM’s submission will allow renewable generators to properly identify a project-specific bid price for bidding into the capacity market auctions,” said Katherine Gensler, vice president of regulatory affairs for SEIA. “This process provides renewable generators a better opportunity to compete on a level playing field with other capacity providers and to help meet states’ clean energy goals.”

“PJM’s proposal provides the flexibility necessary for renewable resources to demonstrate that they are among the lowest cost and most reliable sources of capacity available today,” said Amy Farrell, AWEA’s senior vice president of government and public affairs.

AWEA said that while PJM’s compliance filing offers renewables short-term relief, the wind industry will be seeking long-term changes to the RTO’s resource adequacy construct to ensure renewables’ future.

IMM Analysis

The Monitor’s analysis concluded that the new MOPR rules won’t impact prices in the next BRA in part because they don’t significantly change the treatment of gas-fired resources and they allow categorical exemptions for existing self- supply, demand response, energy efficiency and storage resources. It also cited the “competitiveness of unit specific offers for existing subsidized nuclear resources.”

The Monitor said “although preliminary estimates of the default MOPR floor prices for new renewables are relatively high, those estimates are based on existing renewable facilities in PJM and based on standard assumptions about technologies, financing costs, capacity factors and revenues. Renewables suppliers assert convincingly that many new renewables are competitive now and will demonstrate that fact through requests for unit specific exceptions to default MOPR floor prices. Renewables suppliers also assert that they will become even more competitive in the future and for the 2024/2025 RPM BRA.”

Lazard’s current levelized cost of energy analysis estimates utility scale solar PV at $32-$42/MWh and onshore wind at $28-$54/MWh — well below nuclear ($118-$192/MWh), coal ($66-152/MWh) and gas peakers ($150-$199/MWh) and competitive with combined cycle plants ($44-$68/MWh).

The Monitor’s analysis included a base case with current MOPR rules, offers from the 2021/22 Base Residual Auction and an adjusted supply curve to account for retirements, must-offer exceptions, projected new supply and updated offer caps for the 2022/23 delivery year. The demand curve was updated using the 2022/23 planning parameters.

The impact analysis applied the new MOPR rules to the base case supply and made no changes to fixed resource requirement (FRR) elections. The Monitor said its report did not include detailed locational deliverability area (LDA) prices or cleared quantities for confidentiality reasons.

Errors in Glick Analysis?

The Monitor contrasted its conclusions with analyses by Commissioner Richard Glick and consulting firm Grid Strategies, both of which predicted an expanded MOPR would add billions in annual capacity costs. “Neither are based on supportable, detailed analysis of the capacity market,” the Monitor said.

Glick dissented on the December order, calling it an attack on decarbonization efforts and warning it could increase PJM capacity costs by at least $2.4 billion annually. Glick’s “back of the envelope” estimate was cited in rehearing requests by Maryland, New Jersey, public power groups and environmental advocates.

The Monitor said Glick’s calculation is based on an incorrect assumption on the total capacity of previously cleared nuclear power plants that receive zero-emissions credits in Illinois and New Jersey (4,837 MW, not 6,670 MW). The monitor said Glick also incorrectly assumed the order would cut cleared demand resources by 25% when the order allowed a categorical exemption for existing demand resources.

The Monitor said Glick also erred in his assumptions about the slope of the demand curve and failed to adjust a baseline of 2021/22 BRA prices for changes to the supply and demand side.

“We are aware of the Bowring report and we are reviewing it,” Glick said via email. “I can’t say more because this remains a pending proceeding and the issue is likely to be part of my consideration of the rehearing requests.”

Grid Strategies Report

The Monitor also challenged Grid Strategies’ report last August that concluded an expanded MOPR could increase capacity market prices by $5.7 billion annually, a 60% increase. Grid Strategies President Rob Gramlich repeated that estimate in testimony before the Illinois legislature earlier this month. (See MOPR Impact Study Ruffles Feathers Ahead of FERC Ruling.)

The Grid Strategies report drew “broad and incorrect conclusions [due] to a conflation of the IMM’s analysis of the PJM extended resource carve out proposal (RCO) with all proposals to modify PJM capacity market rules,” the Monitor said.

Gramlich said the Monitor’s study cannot be verified because its “data, methods and assumptions are covered in six sentences of words with no numbers.” The Monitor said details of its report cannot be published because it is based on confidential data.

Gramlich agreed that “if all of PJM’s rehearing and compliance proposals are accepted by FERC, and the unit-specific process turns out favorably for clean resources, then that version of broad MOPR will likely be less costly initially than some of last year’s versions. Of course, those are some big ‘ifs.’ And it won’t change the fact that broad MOPR gets costly soon and fails the `over-mitigation’ test since it is not tied to any identified market power.

“While the immediate impacts may be muted, the longer-term harm exists, and states are likely to pick up consideration of alternative options when they are able to resume policy making,” he said. (See related story, Study: Retail Design Key to Escaping Capacity Markets.)

Mike Hogan, a senior advisor with the Regulatory Assistance Project, said the Monitor’s report “conspicuously addresses only the impending auction, when it was clear that, due to FERC’s shrewd grandfathering of the small share of existing renewable resources, the significant economic impact would grow increasingly over subsequent auctions.”

Hogan, who collaborated with Gramlich on a June 2019 report on market designs for decarbonization, said the Monitor has “for years publicly maintained a doctrinaire and widely discredited insistence that scarcity pricing offers in the energy market should be presumed to be an abuse of market power to be suppressed unless proven otherwise, which leaves them with no option but to defend the [Reliability Pricing Model] as a way of maintaining resource adequacy. This despite the fact that while the Market Monitor has consistently found the energy market to be workably competitive, they have just as often found the RPM to have market power issues.”

IMM Joe Bowring denied that he has opposed scarcity pricing. “The IMM has been and continues to be supportive of scarcity pricing as an essential element of wholesale power markets as documented in multiple FERC filings and in the State of the Market Reports,” he said.

“The IMM supported a different approach to the definition of competitive offers which was rejected by FERC in the MOPR order. The IMM has also published a report pointing out that the [fixed resource requirement] option referenced by Grid Strategies is likely to cost state consumers substantially more than remaining in the PJM capacity market.”

Market Power Allegation

The Monitor said its conclusion that MOPR won’t affect prices in the next auction does “not mean that the IMM expects that prices in the 2022/23 BRA will be unchanged from the 2021/22 BRA,” noting its previous conclusion that market power was exercised in the 2021/22 auction. (See IMM: PJM 2018 Capacity Auction was ‘Not Competitive.’)

The Monitor filed a complaint with FERC last year alleging PJM consumers will be overcharged by $1.2 billion for 2021/22 because PJM’s market seller offer cap is too high (EL19-47). “Those overpayments would be eliminated if the commission modifies the market seller offer cap as requested,” it said. PJM has disputed the Monitor’s conclusions and sought to have its complaint dismissed. (See Monitor Defends Offer Cap Complaint.)

Will PJM’s Interpretation Stand?

How renewables ultimately fare will depend in part on whether the commission accepts PJM’s interpretation of the order.

The commission said that privately funded voluntary RECs cannot be distinguished from those issued under state-mandated or state-sponsored procurements.

But PJM said owners of renewable generation that generate RECs would qualify for the competitive exemption if they certify that the credits “will only be used and retired for voluntary obligations as opposed to state-mandated renewable portfolio standards.” The RTO said it will modify its Generation Attribute Tracing System (GATS) to “to ensure that any capacity market sellers’ self-imposed limitations on use of the RECs can be effectuated.”

In their joint rehearing filing in January, the Environmental Defense Fund, Natural Resources Defense Council, Sierra Club, Sustainable FERC Project and Union of Concerned Scientists contended the unit-specific review will not prevent over-mitigation and excessive prices.

They cited the nominal levelization of gross costs, an assumed asset life of 20 years, exclusion of sunk costs and assumptions based on the economic incentives of gas units, and said the rules fail to reflect the low incremental avoidable costs of renewable resources. “Far from providing a safety valve, unit specific review is of a piece with the order’s blanket exclusion of state-supported renewable resources from the capacity market,” they said.

In its compliance filing, PJM said it would allow capacity market sellers to submit resource-specific justifications of an asset life other than the default 20-year assumption. It said it would cap the permissible term at 35 years, identical to the asset life assumption used in the Avoidable Cost Rate (ACR) for existing resources.

Representatives of the environmental groups said this week that PJM’s filing did not resolve their concerns.

“While some renewable energy projects may be able to clear using resource-specific offer floors, that’s only if developers can convince the Market Monitor that they are competitive on terms that FERC allows.  And critical resources like offshore wind are almost certainly priced out,” said Casey Roberts, senior attorney in the Sierra Club’s Environmental Law Program.

“This conflict is not resolved if — in the near term — some renewable projects qualify with unit-specific costs,” agreed UCS’s Mike Jacobs.

“PJM embraces the conflict with state policies and has not addressed the problem of environmental externalities,” he added. “The two sides (policy vs markets) haven’t agreed on the terms of this debate. PJM and market adherents point to the cost of distorted investment signals, while policy proponents are watching for the costs of air quality and climate.”

— Michael Yoder contributed to this article.