PJM’s Capacity Performance model debuts on July 27 in the first of two transitional auctions for capacity. On August 10, PJM will open the bidding window for its annual capacity auction for the year of 2018-19.
Capacity auctions are where entities that serve customers procure resources to meet projected power needs for three years in the future. Capacity Performance is PJM’s enhanced approach to incenting capacity resources to perform when they are needed, similar to how insurance works.
“Simply put, the word to focus on is ‘performance’,” said Stu Bresler, senior vice president – Markets. “In the past, generators and other supply resources received capacity payments simply for being available on average, or committed to serve PJM customers, during peak hours of the year. As the events of the Polar Vortex demonstrated, that old definition [of capacity resource] wasn’t good enough.”
The first transition auction will open July 27, with results announced on July 30; the second will open on Aug. 3, with results announced Aug. 6. Resource participation in the two transition auctions is voluntary.
The transition auctions will be held for the two delivery years for which resources already had been procured in previous annual Base Residual Auctions (delivery years 2016/2017 and 2017/2018).
“The transition auctions allow us to fill some of our resource requirements with resources that commit to the Capacity Performance requirements,” said Bresler. He added that the transitional auctions also provide revenue to resources that need to make the systems, modifications and fuel supplies needed to perform.
“If they perform well and meet their capacity obligations, they can receive higher capacity payments; if they underperform, they lose capacity revenue. And, for the first time, generators’ revenue is dependent upon how well they perform during system emergencies.”
The annual base residual auction will open Aug. 10 and close on Aug. 14, with results posted on Aug. 21.
All existing generation capacity resources must offer into the auction. All generation capacity resources that are capable of qualifying as Capacity Performance resources, must offer as Capacity Performance resources.
Intermittent resources, storage, demand response, and energy efficiency resources are exempt from the requirement to offer as Capacity Performance resources. If they determine that they can meet the performance requirements, however, they are eligible to offer as Capacity Performance resources.
“The new Capacity Performance requirements in RPM will ensure that, despite the changing nature of the grid – generation retirements, adding new capacity – we’ll have greater assurance have adequate power supplies being available, and able to produce, during the challenging periods when they are most needed,” said Bresler.