By Andy Ott, president and chief executive officer
On Monday, February 26, PJM Interconnection released its report on the recent cold snap.
I’m happy to say that our analysis shows that the grid and the generation fleet performed well during one of the coldest stretches since the 2014 Polar Vortex. Thanks to great coordination and reliable operations from PJM members and operators, the PJM grid remained reliable during the cold snap and demonstrated its robustness and the effectiveness of the changes implemented since the Polar Vortex.
While the report showed that PJM’s grid remains strong, diverse and reliable, it also brought into focus a few issues that PJM and its stakeholders have a real opportunity to change in the near future.
The first is uplift.
The current pricing method for reserves and energy isn’t reflecting the true cost of serving load particularly when the system is stressed – or demand is high – as shown by the spike in uplift during the cold snap.
On a normal day, uplift averages around $389,000 per day. During the cold snap, uplift charges skyrocketed to an average $4.3 million per day, for a total of $47 million. The day with the highest amount of uplift reached nearly $9 million.
PJM has been emphasizing the need for more price transparency. The spike during the cold snap proved that something needs to be done.
This is clear evidence that when the system is under stress, the actions the operators take to ensure that reliability is maintained are often not reflected in transparent clearing prices.
In other words, during stressed conditions, PJM may ask resources that were not scheduled to provide electricity to run in order to ensure that sufficient generation and reserves are available. Those resources are needed to serve the demand, but they are being paid outside of the market, resulting in an inefficient market-price signal.
We must evaluate reforms to address this issue, and do it relatively quickly. We have the vehicle in the new Energy Price Formation Senior Task Force. Reforms include changing the way reserves are procured and priced so that all operator actions are included in price signals and enhancing the calculation of locational marginal pricing.
The second issue is fuel security.
While gas-electric coordination has improved since the Polar Vortex, we need improved contingency modeling and improved information-sharing with local distribution companies.
Tracking and transportation of fuel oil supplies is another area that needs additional analysis and potentially additional tools for operators and owners. While oil is typically a backup resource, PJM resources used more oil during the cold snap, which stressed some resources and supplies.
Finally, the cold snap lasted longer than the Polar Vortex, but the Polar Vortex had much colder temperatures and more severe wind chill. What would happen to operational performance if both occurred at once?
We will analyze such scenarios in a number of areas:
- Identifying the operational tools, including reserves, needed to ride through extreme prolonged events
- Exploring the human factor of resilience (e.g., how the real-time operations function is staffed under extreme scenarios)
- Operating in degraded conditions should the system experience more severe constraints
- Minimizing stress on the system
By addressing these issues, we can ensure that our markets are efficient and transparent, that we are working to make the grid more resilient, and that we are continuing to plan for the grid of tomorrow.