PJM is using a fresh approach to the formal study, called the Quadrennial Review, administered every four years to determine how much capacity the bulk power system needs to remain reliable.
The Quadrennial Review is an analysis required by PJM’s Tariff to assess the Variable Resource Requirement (VRR) curve, a measure that sets the quantity of capacity PJM will procure in the annual capacity auction as a function of price to meet acceptable reliability standards.
PJM and The Brattle Group, which has been retained to conduct the study, are engaging stakeholders at the outset of the process and inviting them to weigh in at strategic points. Historically, stakeholders have provided feedback only after the consultant study was completed.
Initial Feedback Due Aug. 24
Following two education sessions, stakeholders have until Aug. 24 to submit initial input on study scope and approach before Brattle begins its work.
Brattle will continue to involve stakeholders periodically during the process, in particular with an October presentation on the reference technologies it will propose to use in its analysis, a December session on draft results, and a meeting in February to discuss near-final results.
Brattle representatives told stakeholders at the meetings, held Aug. 6 and Aug. 17, that they were pleased to have the benefit of stakeholders’ perspectives going into the process. The industry is changing rapidly, representatives said, posing more uncertainty this time around than there has been in the past.
How Much Capacity Is Enough?
Brattle’s analysis of the VRR curve will include the appropriate procurement level of capacity resources. Input on this topic may also come from a separate stakeholder group involved in Capacity Market Reform Phase II discussions.
The first education session focused on the VRR curve, and the second session concentrated on the proposed approach to assessing the Cost of New Entry (CONE), including the selection of the reference resource technology and the methodology for determining the Energy and Ancillary Services (E&AS) revenue offset.
Net CONE is the capacity price at which a marginal technology should be willing to enter the market to earn just its return of capital. This is estimated as the first year of annualized fixed costs minus projected cost recovery from revenues in the energy and ancillary services markets (the “offset”).
Reference Technology Is Key
Selection of the reference technology is likely the most important study assumption, according to Brattle.
In the past, this has been gas combustion turbine units. Going forward, however, solar and storage dominate PJM’s interconnection queue.
Brattle invited stakeholder feedback on the landscape of energy types being permitted across the PJM footprint as well as details on their revenues and incentives. The evolving fuel mix might lead Brattle to use different reference technologies for discrete VRR curves – not just one for the whole RTO, as it has in the past.
The process will culminate in 2022, with the Tariff mandating a PJM staff proposal due May 15; a member vote by Aug. 31; and a filing, of any proposed changes, by Oct. 1 to the Federal Energy Regulatory Commission. These dates are the year prior to the applicable auction.
Thoughts Sought
Stakeholders are being asked their thoughts in a number of different areas, including:
- What design objectives and performance metrics should be used to assess VRR curve performance?
- What are the most important questions or potential changes that should be evaluated in the VRR curve review?
- What criteria should PJM use to select the reference technology?
- How should the reference technology CONE be estimated?
- How should the E&AS offset be reviewed?
Stakeholder feedback on the VRR curve, CONE and E&AS offset methodology will be accepted until 5 p.m. Aug. 24.
