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PJM’s Solution to Capacity Non-Performance: Create New Product
August 21,2014 PJM has posted a "capacity performance" proposal meant to address the non-performance of capacity resources under its current broken capacity market, and its solution to the non-performance of generators during the polar vortex is to reward capacity owners with a new product -- capacity performance. "Capacity providers—including physical generators, demand response and energy efficiency providers—that offer and are committed to provide the Capacity Performance product will be required to meet additional eligibility qualifications and obligations designed to ensure better performance," PJM said Presumably, such capacity resources will command premium prices. What isn't clear -- and what we expect will not be the case -- is whether pricing for the remaining capacity resources in the market will appropriately reflect the lower value they provide to customers. PJM does also propose changes to the requirements for the Annual Capacity (standard) product which would define performance standards for peak periods and set penalties for not meeting them. However, if such measures were seen as truly effective, they would seemingly eliminate the need for the new enhanced product, so we are skeptical of extracting the value out of annual resources for which customers currently pay. Notable is PJM's admission that, "The new Capacity Performance product would not have an immediate impact on the Installed Reserve Margin calculation. This reflects the fact that the existing IRM calculations already assume higher capacity performance than is occurring, meaning that the new product should produce performance that already is factored in to the IRM calculation." In other words, customers currently aren't getting what they are paying for. Under the PJM proposal, eligible resources for Capacity Performance will be generators capable of sustained, predictable operation for 16 hours per day for three consecutive days; Annual Demand Response capable of sustained curtailment for 72 hours; and Energy Efficiency. To be eligible as a Capacity Performance resource, an officer of the generation resource’s owner would have to certify that four specific requirements have been met: • A generator must have on-site fuel (or dual-fuel backup capability) for at least 16 hours of continuous operation per day for three consecutive days at an output equal to its quantity of committed Installed Capacity. • Generators that burn gas only must have a secured fuel supply with some combination of firm transport, firm commodity and access to storage or equivalent to provide flexible operation during peak gas-usage conditions. • Energy efficiency plans must be determined by PJM to be complete in order to be able to offer into RPM auctions, and must demonstrate the committed level of reduction for the entirety of the Delivery Year for which they are committed. • Annual Demand Response must be available 24 hours a day, 365 days per year, and for 72 continuous hours such that it is capable of reducing demand at least in the amount of the committed quantity for the 16 peak hours of three consecutive days. See more: PJM Capacity Performance Proposal
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