Proposed changes related to limited demand response (DR) and capacity imports are expected to be voted on at the Nov. 21 PJM Interconnection members committee meeting, PJM officials said on Nov. 15.
PJM held a trade media briefing on Nov. 15 to review the background and need for changes to the reliability pricing model (RPM), or the capacity market, to continue to ensure reliability. PJM also noted that the proposed changes are being reviewed in the PJM Stakeholder Process.
Other proposals involving DR as an operational resource and replacement capacity are expected to come to the members committee in December.
Andrew Ott, executive vice president – markets with PJM, said during the briefing that the purpose of the RPM is to ensure long-term resource adequacy and to ensure capacity resources that PJM acquires on a three-year forward basis are deliverable and physically delivered into the market.
The proposed changes are essentially driven by some trends that PJM has observed over the past several auctions and felt needed to be addressed.
One of the changes involves sending the right signals that types of DR like annual DR has a higher price because it has a higher value for reliability as compared to limited DR.
According to PJM, annual DR refers to resources that are available for all days from June through May of the following year, where each request may be up to 10 hours in duration, while limited DR resources are available for up to 10 weekdays from June through September, where each request may be up to six hours in duration.
There were “some counterintuitive price results in the last auction” related to limited DR, Ott said, adding that that pricing was really not consistent with its value to reliability.
For instance, it has limits on its timing and its obligation to respond for reliability but its pricing was very similar to the higher value reliability products, making it a counterintuitive pricing result.
“We’re seeking to address how those reliability limits are actually presented into the auction,” Ott added.
Another area involves the significant increase in capacity imports into the market last year, he said, adding that the robust competition is a great thing for the market “and we’ve actually seen competition in RPM,” which has been one of the success stories.
However, PJM has not been quantifying the risk of transmission curtailment of those external imports “where that resource would be interrupted because they couldn’t be delivered on external transmission systems into us,” he said.
PJM is developing mechanisms to make sure it recognizes that curtailment risk and that such risk is articulated in the auction.
“It would essentially look at what is the ability to transport physically those amounts of imports in, what’s the transmission curtailment risk, and actually have that modeled in the auction,” he added.
Another area involves the 14,000 MW of DR resources that have cleared in the auction over the next couple of years, which is about 8% to 9% of PJM’s total capacity supply.
While it has been a huge benefit to PJM and customers to have that competition of that alternative resource, he said, those resources are being offered into the market with the same notification time “so there’s no diversity in that supply resource.”
Ott added, “[W]e need to see some operational diversity, so what we’re proposing is to have some of the DR operational limits be more … comparable to the requirements for generation, which means that the demand response notification times, for example, need to be timed to the physical capability of the customer response, rather than a contractual capability and we’ll see more operational diversity will come out of that.”
There are two obligations PJM is seeking to add to the DR to make it more consistent with the generation. The first, he added, is a notification time requirement, noting that today, all DR essentially offers a two-hour notice, but what PJM is seeking to change the rule is to make that more physical oriented, so have it be between 30 minutes and two hours over all the resources.
The second obligation would be to offer into the real time energy market so that they can be dispatched based on a price curve instead of just an emergency condition.
Ott also noted that PJM has observed a fair percentage of short-term resources that had cleared in annual auctions, directly buying out of their positions in incremental auctions and profiting from that buyout. He said that is fine as long as their original intent was to deliver physically because it is, in fact, under the tariff, a physical market.