PJM last week continued outlining its proposal to redesign the capacity market to address resource adequacy and reliability concerns through the Critical Issue Fast Path (CIFP) process.
The June 21 presentation followed a June 14 CIFP meeting initiating the third stage of the CIFP process, in which PJM and stakeholders will finalize their proposals. Both stage-three meetings have been devoted solely to PJM’s proposal, with additional time scheduled to continue the presentation this Wednesday. (See PJM Adds Seasonal Capacity to Stage 3 of CIFP Proposal.)
Both meetings were dominated by discussion of PJM’s proposition to bifurcate the capacity market into summer and winter products, which it argues would allow the markets to address a shift in risk toward winter storms, rather than the historical expectation that risk coincides with the peak loads that typically fall in the summer.
PJM Senior Director of Economics Walter Graf said resources could submit offers to participate in either season and could clear in both, one or neither. Resources with costs to operate that may not be recovered by clearing in just one season would be able to indicate a minimum price, which would prevent them from being committed if they cleared in only one season and would not cover their costs at the price the other season’s auction reached. Most resources today have capacity value in both seasons, Graf said, and would have both annual and seasonal costs.
“There are certainly resources today that are mitigated to offer at zero. Those resources would probably also in this construct be mitigated to have a zero-offer component,” he said.
Kevin Kilgallen, of Avangrid Renewables, said each season carries its own risks for generators as well, creating a need for a season-specific capacity performance quantified risk component to fully represent those liabilities.
Once resources clear the seasonal auctions, an adjustment factor would be used to align the results with the annual variable resource requirement (VRR) curve. The summer and winter capacity price would be linked and scaled up or down until it matched the price on the VRR curve with the corresponding amount of capacity procured.
PJM’s Skyler Marzewski said the advantage of retaining an annual is that the new market structure would be built around components already approved by FERC. Graf said that under “blue sky” conditions, without the constraints of the CIFP timeline, avoiding this additional step would be ideal.
“What are the fewest steps we can take to make a seasonal approach with what we already have,” he said, describing PJM’s approach to drafting the new model.
Kilgallen said if PJM’s preference is to move entirely to seasonal auctions with their own demand curves, it should do so rather than trying to use adjustments to get back to the current annual VRR curve.
“If the seasonal demand curves are the way to go, let’s just go there and accept it,” he said.
Calpine’s Matt Barmack said if the summer clearing price is low, reflecting PJM’s belief that risk is now concentrated in the winter, resources may struggle to clear in that auction and cover their full annual costs.
Graf said co-optimizing the seasonal capacity prices allows the rate at which each auction clears to also reflect any costs generators may incur that bleed into other seasons. That’s also in part why PJM decided to seek a seasonal model with two auctions, rather than adding more granularity, he said.
The shift toward winter risk is in part a result of PJM’s proposal to use an expected unserved energy (EUE) model for its reliability analysis instead of its status quo loss of load expectation (LOLE). During the May 30 CIFP meeting, PJM shared preliminary analysis of how the EUE model — which aims to capture the depth and breadth of outages, rather than a count of the number of incidents — could change its thinking on what periods have the highest risk. (See “PJM Presents Risk Modeling Analysis,” PJM Stakeholders Complete 2nd Phase of CIFP.)
The analysis suggests that 96% of the risk is concentrated in the winter under the EUE model, compared to 78% under LOLE. The increase in winter risk also reflects a proposal to use a longer lookback for weather data to capture the impact of rarer weather events.
PJM’s presentation of its proposal is to continue Wednesday, with discussion of a potential model for reliability risk assessment and changes to accreditation, particularly pertaining to the effective load carrying capability construct. The Independent Market Monitor and Leeward Energy also are set to make presentations.
PJM Director of Stakeholder Affairs Dave Anders said additional stage three CIFP meetings will likely be required before the stage-four meeting scheduled for August, when stakeholders will vote on the proposals.
