Gas and Electric Industries Take Big Step Toward Alignment

By Chantal Hendrzak, executive director, Market Evolution, Market Services

The natural gas industry and the electricity wholesale market will step closer to alignment April 1. PJM will make changes to advance the time at which it posts the results of its Day-Ahead Energy Market and reliability unit commitment process as well as changes to reduce the time it takes the day-ahead market solution to solve.

The gas industry also will implement its own changes as a result of the Federal Energy Regulatory Commission Order 809, which called for better alignment of the gas-electric market days. The natural gas pipeline timely nomination cycle will move from 12:30 p.m. to 2 p.m. and will add a third intraday gas nomination cycle. With these changes gas-fired generators can know their energy market obligations before they schedule gas transportation.

In the existing day-ahead market structure, gas-fired generators do not know their day-ahead energy award before the existing timely gas nomination deadline. Day-ahead market results are posted at 4 p.m., after the 12:30 p.m. gas nomination deadline. PJM’s reliability unit commitment results are posted between 6:30 p.m. and 8 p.m. the day before the operating day and do not consistently allow for sufficient notice before the 7 p.m. evening nomination cycle.

This change is the first of two expected in 2016 to improve gas and electric coordination. A second major change expected in the fall will allow intraday PJM energy market offers. Generators will be able to submit offers throughout the day to more accurately reflect their true costs.

Alignment between the two industries has become critically important for PJM because natural gas-fired generation is growing in prominence.

Between 2014 and 2015, natural gas-fired generation’s share of PJM’s total capacity rose from 30.7 percent to 34 percent. (Meanwhile, coal’s share of installed capacity declined during the year from 39.7 percent to 37.5 percent.) More gas-fired capacity is on the way. More than 40,765 MW of gas-fired generation projects are being studied for possible interconnection to PJM.

According to the U.S. Energy Information Administration, nationally, natural gas is expected to surpass coal this year as the leading fuel source for electricity generation, representing 33.4 percent of the fuel mix.

For PJM, the growing importance of natural gas and the need for better coordination came sharply into focus during the Polar Vortex of January 2014. At the height of the cold weather, about 22 percent of generators were out of service. Analysis of the unplanned outages showed several root causes, including major challenges in gas procurement.

The analysis of the Polar Vortex event led to several recommendations, including taking a closer look at how we can better coordinate with the gas industry. These changes are one of the many improvements PJM is making to better align the industries and improve the reliability and flexibility of gas-fired generation.