All five members of FERC, the regulatory group responsible for the U.S. power grid, stated there is nothing to suggest an forthcoming emergency in the country’s electricity markets. Their testimony before Tuesday’s Senate hearing could undermine the Trump administration’s efforts to save ailing coal and nuclear plants through subsidies. Many of the plants have closed or signaled closure in the face of plentiful natural gas, growth in wind and solar power, and stagnant power demand.
PJM capacity auction results for the planning year of June 2019 to May 2020 announced 5/24/16, were down significantly, almost 40% across most PJM markets from the prior year. BAD news for generators as it means less revenue to them, but GOOD for consumers in lower costs.
PJM procured 167,306 MW of power at a clearing price of $100 per MW-day in the majority of the region, down from $164.77 per MW-day last year. It met a reserve margin of 22.4%, meaning that PJM has excess capacity in the amount of 22.4% of expected peak demand. It is also the highest reserve margin in PJM auction history, ensuring reliability and availability of power for customers during the term.
The results were somewhat surprising considering PJM’s capacity performance (CP) program. Under this program, which was approved last year, power producers that agreed to deliver electricity whenever PJM determines it is warranted would receive higher capacity payments. PJM’s thought or hope was that the increased revenue would result in generators re-investing into their plant infrastructure, secure fuel contracts, and thus increasing reliability during peak demand periods. However, non-performance under this program results in significant penalties. Penalties that did not exist under the old base capacity program.
The 2019/2020 auction is only the second such event to adhere to PJM Capacity Performance program. In this year’s auction, 80% of the resources had to clear according to “capacity performance” with the remaining 20% clearing under the old capacity product “base capacity”. Next year’s auction for 2020/2021 will move to 100% capacity performance. The takeaway from this year’s auction and the decrease in price is that there would appear to be adequate generation to meet demand, with more coming on-line.
With all of the commotion around the PPA filings, it seems like it has been years since the announcement of the capacity performance approval. It is important to mention that Capacity Performance will become effective very soon, in June of this year. It has come to our attention that various suppliers have begun to send out correspondence in regards to it. As a friendly reminder, if you signed into an agreement prior to the June 5th, 2015 announcement that extends beyond June 2016, it is very likely that you will see an increase to your current electric supply rate.
Please see below for a short recap of the approved federal regulatory change:
In short, “Capacity Performance” (CP) is a reformation that was approved by FERC last June, that will ultimately increase your current electric capacity cost.
CP is a new product developed in response to the extreme conditions during the 2014 Polar Vortex phenomena, where 22% of total capacity experienced supply outages.
The change to the design of PJM’s capacity market will act as an insurance policy to protect the grid from future power interruptions.
Customers with supply contracts beyond June 2016, will likely see pass through charges (change of law) effective with the June 2016 billing month. For a more detailed look on how capacity performance will affect you and your business, download our Capacity Performance White Paper.
With all the talk in the industry about wind, solar, and fuel cell storage to help businesses manage their energy costs, another resource businesses have turned to is “Demand Response”.
Demand Response is a voluntary program that compensates customers for reducing their electric consumption, in an event where the reliability of the electric grid is threatened, or when wholesale prices are high.
During these critical times referred to as “Events”, businesses agree to reduce their electric usage in exchange for financial compensation “incentive payments”. By reducing energy consumption during hours of peak demand, you relieve stress on the grid, the environment, and your bottom line. Two ways consumers can reduce electricity is:
• Self-Generation – backup generators • Usage Reduction – turning off equipment, large HP motors, slowing down or stopping production at an industrial operation, dimming or shutting off lights, raising A/C set points, etc.
In other words the customer earns revenue for reducing their electric consumption during peak demand periods.
Currently within the PJM footprint, there are Limited, Extended Summer and Annual program options. The most common is “Limited”. Under this program potential events are limited to the summer months of June thru Sept. The maximum number of events that can be called is 10, with a maximum of 6 hours of duration for an event.
Under “Extended Summer” the months are expanded to May thru October and I don’t think “Annual” needs to be explained. Under this program the number of potential events are unlimited and the maximum duration of an event becomes 10 hours.
Effective June 2018 the above mentioned programs will be eliminated and replaced by Base Capacity and Capacity Performance Products. The table below summarizes the various program and their requirements:
Looking back, there have been very few actual curtailment events here in Ohio. Since deregulation started in Ohio in 2009, there have been 5 events totaling 16 hours within the First Energy markets. They occurred all in 2013 as a result of equipment constraints; issues that have since been resolved. For the rest of Ohio there have only been 2 events, 1 in 2012 and 1 in 2013, each 4 hours in duration.
To enroll into a demand response program you will need to select a PJM Curtailment Service Provider. They will monitor your performance to maximize your annual DR payments for the projected load drop, keeping you informed and notifying you of potential events.
If no actual events are called, PJM requires each participant perform a one hour test to confirm their ability to shed their committed load. This test must be completed by September 30 and will be coordinated by your PJM Curtailment Service Provider.
There is no penalty for non-performance. If a customer fails to shed the committed load during their test or during any called events, the only result is a reduced payment or no payment. The total amount of the reduction assessed in any program year is capped at the total contracted DR payment for that year.
If you have back-up generation or have the ability to modify your operation you need to consider a demand response program. We have worked with a number of companies that initially said nope we can’t shed, but after thinking outside the box are now benefiting from demand response.
If you don’t enroll into a DR program you will never receive an incentive payment. Remember you are always in control of your operation and the load you shed. If you don’t perform to your committed load, there is no out of pocket penalty.
Demand Response values for the June 2016/17 year are around $20,000-25,000 (per megawatt reduction). If you feel you could possibly shed some load, now is a great time to review your business. If you already have an interval meter, the cutoff for enrollment for this coming year is May 15th.
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