Thursday, February 21, 2019

PJM Seeks to Have Market Value Fuel Security

By Rory D. Sweeney

PJM wants to take a more holistic look at how the grid’s supply chain works and factor the findings into its markets.

The RTO announced a plan Monday it thinks will help ensure the reliable delivery of both electricity and the fuel necessary to generate the electricity. The three-phased approach will analyze fuel security throughout PJM’s footprint to identify vulnerabilities, develop criteria to address them and include those criteria in the models used for capacity auctions.

The result would be constraints on the grid that trigger clearing price differences in affected locational deliverability areas (LDAs) in the same way deliverability constraints already trigger price separation in base residual auctions (BRAs). Those price differences would signal opportunities for developers to build new infrastructure.

PJM hopes to have the process in place for the 2022/23 BRA in May 2019.

The RTO will brief stakeholders on the plan and discuss the study scoping document at a special Markets and Reliability Committee meeting from 9:00-12:00 EDT on May 8. The RTO apologized for scheduling it on a “no meeting day,” saying there were no other available times on the committee meeting calendar in May.

Avoiding Problems

PJM fuel security

Ott | © RTO Insider

In announcing the plan, CEO Andy Ott repeatedly reiterated that, while PJM’s grid is currently reliable and has no fuel security issues, problems could materialize if current trends continue for too long. The percentage of gas-fired generation has been growing quickly in PJM’s fleet. The RTO determined last year it wouldn’t have reliability concerns even with a high percentage of gas generation, capping its analysis at 86% of the fuel mix because the current 14% share of demand response and hydro and biomass production is not likely to change, but the analysis didn’t address the security of the gas plants’ fuel supplies. Because they are beholden to gas pipelines, gas plants can have — and pay for — a wide range of contracts, from receiving uninterruptable service to being cut off first if there’s not enough gas in the pipeline. Other plants maintain backup supplies of liquid fuel, such as oil or liquified natural gas (LNG), onsite or are connected directly to Marcellus shale gas wells. (See PJM: Increased Gas Won’t Hurt Reliability, Too Much Solar Will.)

Ott called the plan a “narrow” portion of the resiliency initiatives going on at PJM and throughout the nation. He pointed to pipeline constraints in ISO-NE as justification for the plan to get “ahead of those issues in a timely manner.”

“At some point in the future, we may be overdependent on one pipeline or one set of fuel-delivery infrastructure,” he said. “Our approach is to develop these criteria to make sure that we’re monitoring those trends.”

Plan Mechanics

It’s unclear how the mechanics of the plan will work, as the transmission-constraint pricing it would be modeled on raises prices in areas that have issues. That would suggest the price signals would also reward fuel-insecure units within those LDAs.

fuel security PJM

Natural gas pipeline | Ohio Power Siting Board

“If we see a fuel security problem, the price would elevate in that area,” Ott confirmed in his Monday morning briefing.

PJM spokespersons said the question is beyond RTO staff’s current analysis, but Robbie Orvis of the clean energy consulting firm Energy Innovation predicted it might be designed as a shadow price that calculates what the price would be without the insecure resources and offers them as an adder for secure ones.

Ott appeared to corroborate that in describing the price separation as an “adder.”

“The increased cost to fix that would be adding more onsite fuel tanks or other types of fuel-secure resources,” he said. “The idea is not to give units more money. The idea is to look at the exposure that we have.”

He noted wind, solar and batteries could qualify as fuel secure, but a renewable resource alone “would probably [qualify at] a much smaller amount than its nameplate capacity” in capacity auctions.


PJM said part of the study is to determine what, if any, new construction is necessary and where. Orvis added it’s unclear whether it would create demand for new coal and nuclear units, but “it seems rather unlikely” given the net revenues for those technology types calculated by PJM’s Independent Market Monitor in its 2017 State of the Market Report are “well below” their respective costs of new entry calculation.

“Given just how short these units would be on revenue recovery, it would take a very high price from some kind of new market product for fuel security to cause new coal and nuclear builds,” he said. “It’s worth noting that those low revenues are consistent across zones, so it doesn’t look like there are even any specific constrained areas where those plants are especially attractive.”

The adder would make the threshold easier to reach but require significant additional action.

“Over time, with a high enough price, large retirements, and in constrained zones, it is possible that some kind of fuel security price adder could tip the scales and incent new capacity, but it would take a significant deviation from today’s prices,” Orvis said. “PJM’s high reserve margins in the near- and medium-term, based on its cleared capacity in the capacity market, indicate that it’s unlikely there will be a capacity shortfall to push capacity market prices up.”

Orvis noted the modeling parameters PJM plans to use will likely underestimate the generation fleet and therefore might indicate a fuel delivery constraint when there are actually many more resources available.

“It is possible PJM will charge its customers for a service or attribute that is not needed. It would be better if they modeled the system based on what is actually expected to be available rather than their required reserve margin since they have in the past and will in the future continue to come in well above that reserve margin,” he said.


Paul Bailey, CEO of the American Coalition for Clean Coal Electricity, praised PJM’s action and urged other grid operators to follow suit. “We are also encouraged that PJM is following a work plan consistent with the urgency necessary to address lack of fuel security,” he said. “Over the next three years, more than 6,000 MW of fuel-secure coal-fueled generating capacity in PJM are expected to retire.”

Meanwhile, NRG Energy spokesman David Gaier noted PJM on Monday also said that FirstEnergy’s announced retirements of its Davis-Besse, Perry and Beaver Valley nuclear plants will not cause reliability problems.

“Units can retire as scheduled” PJM said in a presentation for the May 3 Transmission Expansion Advisory Committee meeting. “Operational flexibility allows [us] to bridge any delays with the transmission upgrades.”

Gaier said the RTO’s analysis undermines FirstEnergy’s request that the Department of Energy declare an emergency to keep the plants running. “Clearly, the attempt by FirstEnergy to keep open its uneconomic nuclear plants on the backs of ratepayers is a subsidy in search of a crisis — one that doesn’t exist,” Gaier said.