PJM unveiled the reference model that it will use in its analysis of the Environmental Protection Agency’s Final Clean Power Plan Rule to the Transmission Expansion Advisory Committee on Thursday.
PJM is analyzing the potential economic impacts of the rule, at the request of the Organization of PJM States, Inc. In addition to the presentation, PJM summarized its key observations in a report.
The analysis will look at a 20-year period and examines how factors such as public policy, regulations and market drivers affect decisions.
For the final rule, OPSI requested that PJM develop an economic baseline (reference model) before studying the various compliance pathways set out by the EPA. In addition to the reference model, PJM also performed sensitivities to the reference model, including adopting lower natural gas prices based on a secondary forecast, and state renewable portfolio standards.
PJM found that several factors make finding new investment for non-natural gas resources a challenge. These include natural gas-combined cycle resources’ low capital costs and efficiency of operation, and the ability of natural gas-combined cycle to significantly influence or set price in both capacity and energy markets.
With gas prices at their lowest point, existing resources with the highest going-forward costs (primarily coal and nuclear but also other steam resources) face the greatest economic risks in the early years of the simulation. In general, low energy market prices make these resources more dependent on capacity market revenues.
PJM also found that wind and solar can continue to grow in a low gas price environment, provided that renewable portfolio standards are in place and alternative compliance penalties remain high.
The result of the final report will include an assessment of the potential economic and reliability impacts of the Clean Power Plan’s approaches, commonly called compliance pathways. Each of the compliance pathways is likely to yield different economic and reliability results for the PJM region over the interim (2022-2029) and final (2030 and beyond) compliance periods.
PJM will issue its final assessment report later this May.