A PJM Interconnection LLC capacity market construct designed to accurately value the reliability contributions of variable renewable energy resources has come under criticism in a new complaint filed with the Federal Energy Regulatory Commission.
PJM's approach to valuing the capacity contributions of variable generation resources such as wind and solar has caused customers in the grid operator's 13-state footprint to pay for "phantom capacity," Roy Shanker, an independent consultant who is active in the PJM stakeholder process, said in the Nov. 30 complaint (EL23-13).
PJM ensures grid reliability through three-year forward capacity auctions designed to procure sufficient power supplies to keep the lights on at all times.
Shanker's complaint focuses on a new capacity valuation approach adopted by PJM in 2021 known as effective load-carrying capability, or ELCC. The approach effectively discounts the capacity contributions of variable renewable generators that cannot commit to performing for all of the 8,760 hours in a year. It also accounts for marginal declines in capacity contributions as renewable energy and storage penetration increase on a system.
Complaint says approach results in excess capacity
The problem with PJM's current approach is that it allows resources accredited under the grid operator's ELCC methodology to offer capacity into PJM's capacity auction beyond what they can deliver to the grid, Shanker argued.
According to the consultant, PJM accredits variable resources in excess of a facility's capacity interconnection rights. Those rights establish limits on the amount of energy capacity resources that can inject on to the grid based on transmission congestion constraints. The limits reflect a generating unit's net capability at PJM's expected summer peak load.
A proper approach would accredit capacity based on hourly energy production up to a generator's capacity interconnection rights, Shanker said.
When asked for comment, PJM spokesperson Jeff Shields cited reply comments PJM filed in a separate rulemaking proceeding (RM22-14) on generator interconnection reforms in response to comments from Shanker. In its comments, PJM maintained that it "has never permitted the final capacity values of wind and solar resources to exceed their" capacity injection rights.
PJM also cited a separate complaint against the Midcontinent ISO that FERC unanimously rejected in 2019, calling Shanker's arguments "strikingly similar" to those made in that proceeding (EL19-28).
Shanker's Nov. 30 complaint nevertheless noted that previous reports by Monitoring Analytics, PJM's independent market monitor, estimated that PJM's current ELCC approach produced inflated capacity costs of $200 million and $59 million for PJM's capacity auctions covering the 2022-2023 and 2023-2024 delivery years, respectively.
"Such distortions will continue and worsen with the growing increases in variable resources and persist until PJM finally implements some of its proposed changes now being discussed in the stakeholder process," Shanker said.
Shanker added that "there is no deadline for such corrective changes or assurances that such changes will be made."
Among other things, Shanker argued that PJM's current ELCC does not only harm customers by forcing them to pay for phantom capacity. The increase in overall capacity supply also artificially lowers market clearing prices to the detriment of other resources such as thermal power, hydroelectricity and energy storage, Shanker said.
"In short, competing generation is being significantly underpaid and new entry discouraged because of phantom capacity," Shanker said.
As relief, Shanker asked FERC to find PJM in violation of its tariff and direct the grid operator to make necessary adjustments in all previous capacity auctions and "stop this inappropriate accreditation immediately on a going forward basis."
Shanker requested a Nov. 30 effective refund date for the complaint proceeding.
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