Opportunities to More Efficiently Meet Seasonal Capacity Needs in PJM
Prepared for the Natural Resources Defense Council (NRDC)
The implementation of the PJM capacity market as an annual design made sense in the historical context with summer having both the highest demand and shortest supply. However, significant changes to the resource mix and the nature of reliability concerns in both seasons have introduced a more prominent need to establish resource adequacy in both the summer and winter seasons. To address winter supply adequacy and enable summer resources, PJM has introduced a series of reforms, from the prior summer-only demand response program, to Capacity Performance, to a new resource matching program for some seasonal resources.
Despite these reforms, the current PJM capacity market design maintains several shortcomings that limit the full participation of seasonal capacity resources to more cost-effectively meet seasonal reliability needs. Because it maintains an annual design, PJM effectively imposes the same reliability requirement in both the summer and winter seasons even though winter peak load is substantially lower and could be met reliably with 13,538 to 16,172 UCAP MW less capacity. Ignoring that reality means that summer-only capacity cannot participate without being matched with an equivalent amount of winter-only capacity. This results in inefficiently little reliance on summer-only resources, and inefficiently high procurement of annual capacity. The effects are exacerbated by limitations of the seasonal resource matching program.
