The Federal Energy Regulatory Commission has accepted a PJM Interconnection LLC proposal to effectively limit the power capacity values of renewable energy resources because it aligns with a new method for calculating grid reliability contributions.
But FERC's order, issued late April 7, drew a dissent from one commissioner who worried that PJM's plan will force renewable energy projects to reenter a grid interconnection queue that has already been plagued by delays.
PJM submitted the proposal (ER23-1067) in February to establish new rules for allocating capacity interconnection rights (CIRs) within its recently adopted grid reliability framework, known as effective load-carrying capability (ELCC).
FERC approved PJM's ELCC construct in July 2021. The methodology is designed to accurately capture the capacity contributions of variable renewable energy resources such as wind and solar, as well as battery storage and hybrid resources, as their systemwide penetration grows across the grid operator's 13-state mid-Atlantic footprint.
In its February filing, PJM proposed to revise its ELCC study process so that CIRs are allocated to variable resources based on their historical production during peak summer and winter conditions. The proposed revisions would also account for transmission constraints on PJM's system.
Proposal centers on capacity interconnection rights
PJM's forward capacity market construct is designed to ensure grid reliability by procuring sufficient generation capacity through auctions held three years ahead of when energy supplies are needed. Capacity interconnection rights determine the amount of energy capacity that resources can provide to the grid.
Prior to July 2021, variable resources such as wind and solar received CIRs based on their average summer peak hour capacity factor calculated over the previous three summers. That resulted in wind and solar resources generally receiving CIRs that reflected a lower percentage of their net maximum capacity when compared to conventional generators, whose CIRs were allocated based on their expected peak summer production.
In a November 2022 complaint (EL23-13), industry consultant Roy Shanker challenged PJM's new ELCC process, arguing that it allows variable resources to offer capacity into PJM's auction beyond what they can deliver to the grid. A coalition of clean energy associations responded by arguing that the ELCC process appropriately recognizes that wind and solar resources can often deliver electricity beyond their CIRs when PJM's transmission system is unconstrained.
In its February proposal, PJM explained that its system conditions are expected to change significantly due to member states' decarbonization efforts. It, therefore, proposed to cap CIRs for variable resources to reflect their historical output in the summer and winter months. Those calculations would be adjusted to account for any curtailments due to transmission system constraints.
In addition, PJM proposed to cap CIRs for hybrid resources by subtracting the nameplate capacity of storage components such as batteries. Collocated storage components would need to apply for CIRs separately. The change is necessary to avoid the risk of overestimating a hybrid resource's maximum output, PJM said.
PJM's proposal also included a four-year transition process in which interconnection customers who submitted requests for an increase in CIRs prior to March 3 could elect to participate in annual studies to identify any unused transmission capacity. Additional CIRs would then be allocated prior to the beginning of auction delivery years. The transition process would cover five delivery years, beginning with the 2025/2026 delivery year.
FERC approves changes over commissioner's dissent
In its April 7 order, FERC agreed that PJM's proposal will help guarantee that variable resources' capacity sell offers do not exceed their available output.
"We find that PJM's proposal to strengthen the ability of its ELCC model — the objective of which is to estimate the reliability contribution of resources in a future delivery year based on forecasted system conditions — to account for deliverability is just and reasonable," FERC said.
FERC acknowledged that the immediate effect of PJM's proposal will be to reduce the capacity values of wind, solar and hybrid resources. But the commission reasoned that PJM's transition process will help affected resources offset those reductions.
"By providing greater flexibility for affected resources to request additional CIRs on a going-forward basis, PJM provides ELCC resource owners a long-term solution to address any accredited [capacity] reductions they may experience in the near term," FERC said.
FERC also approved PJM's approach to hybrid resources, saying it expects PJM to make further revisions as the grid operator gains more modeling experience.
But Commissioner Allison Clements issued a dissent criticizing PJM's transition mechanism and the proposal's approach to hybrid resources.
Clements noted that the FERC order extended until April 10 the March 3 deadline by which an ELCC resource must submit an interconnection request to be eligible for the transition mechanism for any delivery year. But that is not nearly enough time, she maintained, and already has had bad consequences.
"PJM has given no reasonable justification for giving resource owners only one opportunity to make this election [to request additional CIRs] on such a compressed timeline," Clements said. "The result has been an arbitrary and likely ill-informed mad dash into the interconnection queue."
PJM reported receiving more than 400 requests for transitional system capability studies. But trade associations representing renewable energy developers told FERC that they were unable to make "thoughtful, informed investment decisions" within such a short time frame, Clements said.
Clements also argued that PJM's treatment of hybrid resources rests on an "economically irrational assumption."
"In essence, the resource owner is assumed to inject from the storage component in a manner that perfectly eliminates the ability of the variable component to inject, when in fact the resource owner likely invested in a storage component to do the opposite: to help to firm up any variability of the renewable component," Clements said.
FERC set an April 10 effective date for the package of changes.
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