The third phase of PJM’s ongoing study of impacts associated with the energy transition, published Friday, explores the pace of resource retirements and replacements through 2030 and highlights potential reliability risks to meeting growing electricity demand.
Energy Transition in PJM: Resource Retirements, Replacements and Risks (PDF) is the latest study in a multiyear, multiphase effort undertaken in light of industry trends and PJM’s strategic focus on helping to facilitate state and federal decarbonization policies reliably and cost-effectively across 13 states and the District of Columbia.
PJM’s research highlights four trends below that, in combination, present increasing reliability risks during the transition, due to a potential timing mismatch between resource retirements, load growth and the pace of new generation entry under a possible “low new entry” scenario:
- The growth rate of electricity demand is likely to continue to increase from electrification coupled with the proliferation of high-demand data centers in the region.
- Thermal generators are retiring at a rapid pace due to government and private sector policies as well as economics.
- Retirements are at risk of outpacing the construction of new resources, due to a combination of industry forces, including siting and supply chain, whose long-term impacts are not fully known.
- PJM’s interconnection queue is composed primarily of intermittent and limited-duration resources. Given the operating characteristics of these resources, we need multiple megawatts of these resources to replace 1 MW of thermal generation.
The analysis also considers a “high new entry” scenario, where this timing mismatch is avoided. While this is certainly a potential outcome, given the significant policy support for new renewable resources, our analysis of these long-term trends reinforces the importance of PJM’s ongoing stakeholder initiatives, including capacity market modifications, interconnection process reform and clean capacity procurement, and the urgency for continued, combined actions to de-risk the future of resource adequacy while striving to facilitate the energy policies in the PJM footprint.
Overall, the amount of generation retirements appears to be more certain than the timely arrival of replacement generation resources and demand response, given that the quantity of retirements is codified in various policy objectives, while the impacts to the pace of new entry of the Inflation Reduction Act, post-pandemic supply chain issues, and other externalities are still not fully understood. Should these trends continue, PJM could face decreasing reserve margins for the first time in its history.
Specifically, the analysis shows that 40 GW of existing generation are at risk of retirement by 2030. This figure is composed of: 6 GW of 2022 deactivations, 6 GW of announced retirements, 25 GW of potential policy-driven retirements and 3 GW of potential economic retirements. Combined, this represents 21% of PJM’s current installed capacity.
In addition to the retirements, PJM’s long-term load forecast shows demand growth of 1.4% per year for the PJM footprint over the next 10 years. Due to the expansion of highly concentrated clusters of data centers, combined with overall electrification, certain individual zones exhibit more significant demand growth – as high as 7% annually.
On the other side of the balance sheet, PJM’s New Services Queue consists primarily of renewables (94%) and gas (6%). Despite the sizable nameplate capacity of renewables in the interconnection queue (290 GW), the historical rate of completion for renewable projects has been approximately 5%.
The projections in this study indicate that the current pace of new entry would be insufficient to keep up with expected retirements and demand growth by 2030. The completion rate (from queue to steel in the ground) would have to increase significantly to maintain required reserve margins.
In the study, PJM also considers generation entry beyond the queue using projections of higher new entry of resources. Those projections indicate that, despite eroding reserve margins, resource adequacy would be maintained if the influx of renewables materializes at a rapid rate and gas remains the transition fuel, adding 9 GW of capacity. The analysis performed at the Clean Attribute Procurement Senior Task Force (CAPSTF) also suggests that further gas expansion is economic and competitive.
The findings of this study highlight the importance of PJM’s ongoing stakeholder initiatives (Resource Adequacy Senior Task Force, Clean Attribute Procurement Senior Task Force, Interconnection Process Subcommittee), continued efforts between PJM and state and federal agencies to manage reliability impacts of policies and regulations, and the urgency for coordinated actions to shape the future of resource adequacy.
In support of this ongoing work, on Friday the PJM Board of Managers issued a letter initiating the Critical Issue Fast Path (CIFP) process to tackle the resource adequacy and reliability issues that are currently before stakeholders in the Resource Adequacy Senior Task Force (RASTF). The CIFP is a unique, accelerated stakeholder alternative to the normal stakeholder process designed to expeditiously resolve issues that are contentious or time sensitive.
PJM has undertaken multiple initiatives in coordination with stakeholders and state and federal governments to facilitate the decarbonization policies within its footprint reliably and as cost-effectively as possible and to help build out the grid of the future, including interconnection queue reform, deployment of the State Agreement Approach to facilitate 7,500 MW offshore wind in New Jersey, and coordination with state and federal governments on maintaining system reliability while developing and implementing their specific energy policies.
The first two phases of the energy transition study, Frameworks for Analysis (PDF) and Emerging Characteristics of a Decarbonizing Grid (PDF), focused on energy and ancillary services and resource adequacy in 2035 and beyond. This third phase focuses on resource adequacy in the near-term through 2030.