PJM presented its long-term economic compliance analysis for the Clean Power Plan to the Transmission Expansion Advisory Committee May 12. Muhsin Abdurrahman, senior market strategist – Emerging Markets, also briefly discussed the white paper supporting the conclusions from the analysis.
PJM developed a comprehensive model representing markets for energy, capacity, renewable energy credits, and carbon dioxide in order to analyze the potential impacts of EPA’s Clean Power Plan for the Organization of PJM States.
Abdurrahman said that in June, PJM will present its transmission congestion analysis and compliance pathways economic assessment report. This will contain more operational analysis and an examination of the CPP and congestion costs. PJM will continue performing economic and reliability sensitivities, looking at local issues and additional considerations related to the compliance pathways, among other topics.
PJM developed seven compliance pathway scenarios – four mass-based and three-rate-based. Mass-based compliance results in an explicit cap on the emissions from affected sources. A rate-based pathway uses emission rate credits as the tradeable commodity to help achieve compliance, but does not cap emissions.
In each rate-based scenario, emissions performance was measured against a carbon dioxide emissions rate target. The mass-based scenarios apply a carbon dioxide limit to the PJM region or PJM states for existing and/or new sources.
Abdurrahman mentioned that PJM will also be conducting coordinated analysis with MISO once the internal analysis is completed. While PJM’s modeling is focused on the PJM operational region, PJM resources can be trade-ready, meaning generators could potentially trade allowances or emissions reduction credits with anyone in the country.
“The resource impact could be lower costs of compliance,” he said.
Key observations from the modeling are:
- Trade-ready/regional compliance leads to lower compliance costs.
- Mass-based compliance provides more certainty in emissions levels than rate-based.
- Rate-based compliance can lead to fewer retirements than mass-based compliance but is very sensitive to the level of output from zero-emitting resources that can be converted to emission rate credits.
- Rate-based compliance reduces wholesale energy market prices relative to mass-based compliance which can negatively impact zero-emitting resources.
- Because of PJM’s regional economic operations, comparable resources in neighboring states can be dispatched independent of the chosen compliance pathway.
- Because of PJM’s regional economic operations, interstate or intrastate trading of emissions allowances and credits affects wholesale prices only when they change the marginal resource in energy or capacity markets.