Nation’s Largest Electricity Market Has Enough Power Through (at least) 2018

May 27, 2014 by Stacey Steep
Stacey Steep is a Legal Fellow with the Sierra Club.

This month, PJM, the largest grid operator in the country, wrapped up its capacity auction for 2017-2018. The auction came on the heels of claims by dirty energy industries and their congressional allies that PJM’s power system cannot cope with upcoming coal retirements—but this fear mongering is far from reality.

PJM’s capacity market is a starting point for maintaining reliability and controlling costs in the region.  Before energy markets, new capacity infrastructure was a main way for utilities to increase profits because many regulators gave utilities a green light to recoup all capacity-based capital costs. Not surprisingly, utilities tended to overbuild, in some cases leaving consumers with unnecessary costs and power plants.

PJM’s solution was to use a capacity market as part of its grid planning process and to set prices. Three years before electricity is actually needed, PJM requests more capacity than it thinks it will actually need by using around a 15% reserve margin above what it expects to be peak demand.  With this buffer in place, PJM then prices an entity’s investment through a series of auctions in order to secure adequate resources ahead of time and provides price signals to induce necessary future investment.

In this month’s auction, PJM surpassed its goal for 2017-2018, clearing more than 167,000 MW from the auction for a total system reserve margin of 19.7%.  When coupled with over 15,000 MW of firm capacity, PJM has more than 180,000 MW in total capacity on hand, and even more capacity in the region.

These results show that PJM can shift from dirty energy sources to renewables, demand response, and efficiency without threatening grid reliability.   The auction procured nearly 11,000 MW of demand response, nearly 6,500 MW nameplate capacity of wind and solar, and 1,339 MW of energy efficiency.  99.9% of the energy efficiency offered into the auction cleared, an increase of more than 200 MW of energy savings for customers.  PJM still has changes that it needs to make to better incorporate those resources—especially efficiency—but these gains are good news for reliability.  PJM’s own report on the polar vortex showed demand response performed well, almost all of plant outages were from fossil fuel-fired power plants.    More recent reports suggest that coal operators may have even manipulated markets to drive up prices during the cold conditions.

Despite this poor performance, the incumbent dirty-energy sector continues to cast doom and gloom projections over the changing energy market.  With a 19.7% reserve margin, the country’s largest grid operator not only has more than enough capacity for 2017-2018, but its move away from dirty energy helps cut harmful emissions, keep electricity prices downcreate jobs, and—even with coal retirements in the offing— keep the lights on.

The views expressed in this blog are those of the author, and do not necessarily represent the views of the Sustainable FERC Project or Natural Resources Defense Council.

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