The Federal Energy Regulatory Commission on April 30 rejected a proposal by the PJM Interconnection to allow renewable energy and storage resources to participate more fully in its capacity market after concluding that a key provision would benefit some existing resources over newer market participants.
Despite rejecting PJM's proposal in full, FERC said the grid operator's effort to assign accurate capacity values to variable energy resources by developing a broader framework "appears" to be a just and reasonable approach.
At issue is a long-running effort by PJM to accommodate more renewable energy resources and develop rules consistent with Order 841, a landmark FERC rule requiring regional grid operators to allow energy storage resources like batteries to fully participate in wholesale power markets.
In October 2019, FERC largely accepted a PJM compliance filing (ER20-584) that spelled out how the 13-state grid operator plans to comply with the storage rule. But the commission also opened a separate investigation (EL19-100) into whether PJM's proposed 10-hour minimum run-time rule for storage resources seeking to participate in its capacity market is unjust and unreasonable.
In April 2020, FERC granted a petition by PJM to hold paper hearings for both proceedings in abeyance as the grid operator embarked on a separate stakeholder process aimed at reworking how it values the capacity contributions of intermittent resources such as wind, solar, storage and hybrid resources.
Floor values
As a result of that monthslong stakeholder process, PJM submitted a new proposal (ER21-278) in October 2020 — dubbed the Effective Load Carrying Capability, or ELCC, proposal — to establish three different types of ELCC resources: variable resources, limited duration resources, and combination resources.
Under PJM's proposal, generating resources that are not ELCC resources, such as existing fossil fuel-fired units and nuclear plants, would be designated as "unlimited resources" because they can continuously maintain their output throughout an operating day.
Recognizing the diminishing capacity values of variable resources as their systemwide penetration grows, PJM also proposed to update its ELCC analysis annually to account for resource deployment levels and load shapes.
To provide developers with more certainty, PJM proposed to establish floor values for each ELCC class so that they have a minimum capacity value assigned for the first 13 delivery years covered by its forward capacity auctions. Floor values for the first 10 years would vary in accordance with "cohorts" of ELCC resources that entered PJM's capacity market in that calendar year.
The proposal was broadly supported by clean energy groups, including the Energy Storage Association, or ESA, which called the capacity floor values "crucial because they will provide certainty that project developers, financiers, and asset managers will be able to rely upon when projecting the minimum amount of capacity capability that a given ELCC resource will be credited for in PJM's capacity market."
Transition mechanism at issue
FERC rejected PJM's filing in full. The commission found that the proposal to establish minimum floor values based on cohort year would unjustly and unreasonably discount the capacity of ELCC resources that enter the market at a later date, "despite the fact that these resources are likely to provide similar capacity value to existing ELCC resources."
"The transition mechanism would discriminate between resources in a class based on vintage despite the fact that all resources within a class bear equal responsibility for the decrease in the capacity contribution of their ELCC class," FERC explained.
FERC gave PJM until May 14 to submit a new filing or request an abeyance. In doing so, however, the commission added that "PJM's ELCC framework without the transition mechanism appears to be a just and reasonable approach to determining the accredited capacity value of variable resources, limited duration resources, and combination resources."
Jason Burwen, ESA's vice president of policy, noted in an interview that the ELCC proceeding is "incredibly important" to the storage industry, citing long-standing barriers to storage participation in PJM's multibillion-dollar capacity market.
"What [FERC] is saying is that they can't live with this transition mechanism," Burwen said. "To ESA, it's absolutely fundamental that we get the capacity accreditation reforms for energy storage done, and done as soon as possible because every auction that goes by is just one more lost opportunity to correct the mistaken capacity accreditation of storage that currently persists."
PJM's next capacity covering the 2022/2023 delivery year is scheduled to conclude later this month, with official results expected in early June.
