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Published Feb. 29, 2024 (Ethan Howland – Senior Reporter – UtilityDive) — The top issues facing the PJM Interconnection this year are capacity market reforms, power plant retirements and the development of a new transmission planning paradigm, according to key stakeholders and industry consultants.
Adding to the complexity of PJM’s challenges, the issues are intertwined.
“Everything is connected,” said Steve Lieberman, American Municipal Power vice president of transmission and regulatory affairs. “We might talk about them in silos on different days, but the rules for the capacity construct, the rules for the energy market, the way the interconnection queue works, the way we do the transmission planning … it’s really all together.”
One of the key issues that threads through PJM’s expected focus this year is ensuring that enough new generation — expected to be mostly inverter-based resources like solar — can come online to replace retiring power plants so that grid reliability is maintained.
Generation retirements
Talen Energy’s planned retirement of its 1,282-MW Brandon Shores power plant outside Baltimore is the biggest potential blow to PJM’s overall system stability announced in the past year, according to Bill Dugan, director of optimization — wholesale for Customized Energy Solutions, an energy management company.
In response to Talen Energy’s announcement last year that it planned to retire the plant, PJM decided to advance nearly $800 million in transmission projects needed to maintain reliability. The grid operator also plans to enter into a “reliability must-run,” or RMR, contract with Talen to keep the power plant running while the transmission is being built.
At the same time, PJM — which runs the grid in 13 Mid-Atlantic and Midwest states, plus the District of Columbia — is contending with load growth in areas like Northern Virginia, which triggered a $5 billion transmission expansion plan approved in December.
“PJM has to face the task of getting all these [projects] approved, and also explaining if they’re really the right solutions,” Dugan said. “They have the classic problem of ‘our only hammer to fix this problem is build transmission’ so that’s what they’re stuck doing, even if that isn’t the most effective solution.”
RMR contracts
One of the issues related to power plant retirements like Brandon Shores and Talen’s H.A. Wagner generating station are RMR contracts, which are used by grid operators to keep retiring power plants operating if they are needed for grid reliability.
PJM is going through a “robust conversation” on RMR units, according to Glen Thomas, president of the PJM Power Providers Group, or P3, which represents generators.
It includes “getting the rules straight around RMR agreements and making sure that reliability is maintained, while making sure prices are being sent so that new generation can come on board,” he said.
PJM expects to be using RMR contracts more often, according to Lieberman. “It’s a lot of money that’s not captured in a pricing signal,” he said. “That’s bad because it’s not good for competition.”
PJM last year established the “high priority” Deactivation Enhancements Senior Task Force, which is looking at possible changes to the grid operator’s RMR practices and the timeline for generators to notify the grid operator they plan to shutter a power plant. Currently, power plant owners must give PJM at least three months warning when they plan to shutter a generating unit so the grid operator has time to study whether the retirement would lead to violations of reliability standards.
Capacity market reform
It’s a sign that PJM’s capacity market isn’t effective when a plant like Brandon Shores wants to shut down and PJM has immediate transmission problems, according to Tom Rutigliano, a senior advocate at the Natural Resources Defense Council.
Through a fast-track stakeholder process last year, PJM developed two sets of proposals to revamp its capacity market. The Federal Energy Regulatory Commission approved one set partly aimed at better measuring a resource’s reliability attributes, but rejected the second set over concerns about a proposed offer cap and other issues.
PJM plans to hold its long-delayed forward capacity auction in mid-June and then conduct three more auctions every six months before returning to its annual schedule. Dugan expects the approved changes will affect existing and planned generating resources while putting upward pressure on capacity prices, which will provide additional revenue to power plant owners.
Looking ahead this year, PJM will focus on “capacity market reform 2.0” by considering issues that were left unaddressed in last year’s capacity market reform proposal, according to Kent Chandler, president of the Organization of PJM States Inc. and chairman of the Kentucky Public Service Commission.
“A lot of generation is being built in PJM, but most of it, I would argue, has nothing to do or little to do with the PJM markets,” Chandler said.
A significant amount of that generation development is driven by state policy, according to Chandler. “The economic calculation is not necessarily looking at the energy markets, ancillary services, the capacity markets, it’s looking at who can I get to sign a [power purchase agreement] with,” he said.
“The one constant to [the capacity market] is it’s never quite right,” Lieberman said. “We are at this juncture where we know [the market’s] not right and we’re trying to figure out can we make this square block fit into the round hole, and the round hole is the energy transition.”
Reserves
Another key initiative for PJM this year centers on making sure it has enough reserve power supplies to meet unexpected changes in real-time supply and demand.
Recent winter storms and other events have indicated that PJM isn’t buying enough reserves or the right kind of reserves, and the procurements are requiring out-of-market payments, according to P3’s Thomas.
PJM’s Reserve Certainty Senior Task Force, launched in October, is looking at options for making sure PJM’s reserve products are performing well and are paid for what they provide, according to Dugan. It’s a relatively narrow topic and the task force should be able to offer a “quick fix” to the issue, he said. Any solution will likely increase reserve prices, he said.
Interconnection queue reform
On the other side of the generation retirement issue, PJM has launched a new generator interconnection process after a multi-year pause to help speed the arrival of new power supplies onto the grid.
PJM expects it will process about 72,000 MW in interconnection requests by mid-2025 and 230,000 MW over the next three years, according to Jeff Shields, a spokesman for the grid operator. More than 90% of the projects are renewable energy or energy storage, he said, noting that PJM will likely work with stakeholders to craft additional reforms.
“We’re going to get to see [later this year] if the new queue system is really better,” Dugan said. “If we can actually get shovel ready projects moving faster than before.”
In the last few years, minimal generation has come online on PJM’s system and there is little thermal generation in its interconnection queue, Thomas said. The composition of the queue may change in the next year once PJM’s capacity auctions begin running again and price formation issues get addressed, according to Thomas. “That could help solve that supply side problem,” he said.
Transmission planning
In a pending change, PJM aims to shift this year to a scenario-based long-range transmission planning process that includes consideration of multiple benefits over 15 years.
“This is the year of transmission planning,” Rutigliano said. PJM has essentially no forward-looking transmission planning, he said.
However, NRDC and other groups contend the PJM’s transmission planning proposal is flawed because it fails to directly account for state clean energy policies. Even so, “PJM is going to start the most holistic interconnection planning they’ve ever done this year,” Rutigliano said. “Even their limited proposal is a quantum leap ahead of what they’re doing now.”
Further changes could also be on the table for discussion at PJM.
“Something has to change on planning,” Chandler said. “We can’t just keep being reactive.”
OPSI in November urged PJM to shift from a “reactive” planning approach towards a proactive, holistic and affordable framework for maintaining grid reliability. “That’s about looking at meeting customers’ needs in the most reliable way, at the lowest cost, through ways that we haven’t looked at to this point,” Chandler said.
“PJM has to make PJM investable again,” Chandler said. “There are a lot of people putting money into transmission within PJM, but not necessarily pursuant to PJM processes, like the supplemental projects.”
One possibility is to put generation on par with transmission to solve reliability issues that can be caused by retiring power plants, Chandler said, noting that under the current framework PJM’s only option is to build transmission.
Potentially, reliability problems could be solved by advancing generation that’s in PJM’s interconnection queue, according to Chandler. “What if we could pay a generator a lot less, through a market mechanism, than the transmission option?” he asked.
PJM and its stakeholders should be thinking about possible generation retirements years in advance so it can coordinate the development of new generation, storage and transmission, according to Rutigliano.
“You can’t hide that towards the end of the decade there’s going to be a lot of fossil [plants] retiring,” he said, noting that states, which have authority over generation, would have to be involved in any new process.