PJM ’s Transition to Capacity Performance is Changing the Approach to Procuring DERs RSS Feed

PJM’s Transition to Capacity Performance is Changing the Approach to Procuring DERs

The Supreme Court upheld FERC Order 745 in January 2016, certifying the legality of demand response and instigating opportunity — and growing pains — for participating resources.

As demand response continues to evolve within the domain of distributed energy resources (DERs), integration into system planning and operation is growing in complexity. For DERs to become more active and operate as a source of capacity, energy and ancillary services resources, as well as market design, must adapt and prompt proper signaling and appropriate remuneration.

Evidence of evolving market structures can already be seen in the PJM Interconnection territory, which hosts the bulk of the available wholesale demand response (DR) in the U.S. With a new delivery year underway as of June 1, new market rules have gone into effect, available DR capacity has contracted by nearly 25 percent, and the mix of participating resources has been slightly modified. PJM ended delivery year 2015/16 with nearly 12.9 gigawatts of demand response available for dispatch at all times and started the new delivery year 2016/17 with barely 9.7 gigawatts of DR capacity.

Market changes in PJM

Generators performed poorly during the January 2014 polar vortex — 22 percent of generation in the regional transmission organization (RTO) territory was unavailable to serve customers. Due to “deteriorating resource performance and the ongoing change in the resource mix,” FERC gave PJM the green light to restructure its capacity market rules to account for capacity performance. Starting in delivery year 2018/19 and 2019/20, PJM is no longer procuring Limited, Extended Summer and Annual DR and is only going for two types of Emergency Demand Response products through RPM: (i) Capacity Performance (CP) resources which must be able to sustain availability throughout the delivery year and (ii) Base Capacity resources with a seasonality component. From delivery year 2020/2021 onward, only CP resources will be procured, and this auction will be held in May 2017.

As seasonal products get phased out and CP becomes the established product, there is a lot of speculation over the benefits that CP might bring, as well as whether this was the right move at this critical time for DERs and renewables. The much-anticipated Base Residual Action (PJM’s capacity auction) for 2019/20, which cleared in May, was characterized by low overall prices (hovering around $100 per megawatt-day) and shrinking levels of DR capacity. Prices along with cleared volumes spurred some discomfort for DR participants banking on PJM capacity and traditionally favorable prices for future revenues. As the largest DR market in the world, PJM represents a big chunk of revenues for national aggregators such as EnerNOC. Over the past five years, PJM has represented anywhere between 45 percent and 60 percent of EnerNOC’s overall DR revenue.

The 2019/2020 auction cleared nearly 10.4 gigawatts of DR capacity, of which only 613.7 megawatts were classified as CP. An additional 4,700 megawatts of the offered DR capacity qualified for CP consideration, but low CP prices created little incentive for curtailment service providers to meet more rigorous CP requirements. The total DR capacity cleared its lowest nominal value procured in the past five auctions. However, it is important to keep in mind that as a percentage of the total committed capacity, DR procurement only fell 3.1 percent versus its 2011/12 and 2018/19 peak of 6.4 percent.

Read full article at GreenTech Media