Market Forces Driving Increased Efficiencies and Lower Costs to Customers

More efficient, reliable generation is replacing older resources, keeping costs down and shrinking reserve margin

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The percentage of capacity PJM must have available in reserve to ensure the reliability of the grid is shrinking, thanks in large part to efficiencies brought about by the forces of competition working in PJM’s wholesale electricity market.

What Are Reserves?

To help ensure the reliability of the grid at all times, PJM’s markets procure additional resources that act like a buffer in case of unplanned outages or higher-than-expected electricity demand. PJM’s markets have encouraged investment in new and efficient resources with lower outage rates. Decreasing outage rates means that the amount of extra reserves PJM must have available also decreases.

From 2019 to 2023, about 8,600 MW of generation with an average forced outage rate of 12.3 percent is expected to retire, while about 15,000 MW of generation with a projected outage rate of 4.1 percent is planned to come online. Most of the new power will be generated by more efficient combined-cycle natural gas-powered units.

“The competitive markets continue to drive the retirement of less efficient resources and the addition of more efficient, more reliable and cleaner generating resources,” said Stu Bresler, Senior Vice President – Market Services. “This has resulted in a reduced percentage of reserves necessary to maintain a reliable system in the future.”

In addition, PJM has enabled demand response and energy efficiency to be recognized as capacity resources in competition with traditional generation resources. This brings about further efficiencies and illustrates the value of empowering customers in providing resources needed to ensure overall system reliability. Lower required reserves should tend to lower overall wholesale costs to customers.

Members Endorse Study

The change is reflected in the results of the 2019 Reserve Requirement Study, which the Members Committee endorsed Oct. 31. Among other inputs to the capacity market model, it recommends the Installed Reserve Margin (IRM) – the resource requirement to satisfy PJM’s reliability criteria and serve forecast load.

The study’s results for the three-year-ahead 2023/2024 Delivery Year recommend an IRM of 14.8 percent, compared with 15.7 percent for the 2018 study.

Improvement in Generator Efficiency

The 2019 capacity model is the main factor driving the decrease in IRM, said Patricio Rocha Garrido, Senior Engineer – Resource Adequacy Planning. The Effective Equivalent Demand Forced Outage Rate – the forced outage rate used for reliability and reserve margin calculations – dropped to 6.12 percent for the 2023 Delivery Year in the 2019 study from 6.66 percent for the 2022 Delivery Year in last year’s study.

“That’s a relatively meaningful decrease,” Rocha Garrido said in an Oct. 17 presentation to the Planning Committee. Also exerting downward pressure on the IRM are the 2019 load model and an increase in the emergency imports available from outside PJM, known as the Capacity Benefit of Ties.