FERC Order 841 & Energy Storage Integration in Wholesale Power Markets: Part 3 (PJM)

Patrick McGarry
Senior Director

A Three-Part Blog Series

Part 3: The Long & Winding Road – PJM FERC Order 841 Compliance Achieved

In the first two posts of our 3-part series, PCI covered SPP & CAISO’s compliance with FERC Order 841 to integrate Energy Storage Resources into their markets. Our third and final blog outlines the history of PJM to include energy storage in the capacity market and why the ELCC proposal received a green light from FERC. In addition, we cover the basic concepts of Effective Load Carrying Capability and how PJM answered challenging capacity market questions.

Principles like resource neutrality, fuel agnosticism, and non-discriminatory economic merit are built into the RTO DNA of all organized markets.

The design and implementation of extensive market structures to manage day-to-day system operations and, in some situations, longer-term resource adequacy is central to the RTO model and what distinguishes it from other types of system operators.

The price is the driving force behind these structures.

PJM is an RTO long noted for rancor regarding capacity market structure debates.

No veteran market watcher was surprised when energy storage resource implementation became entangled in the capacity market debate.

But on July 30, 2021, PJM finally became fully compliant with FERC Order 841 as energy storage of different durations can now participate in PJM’s capacity market.

History

On October 17, 2019, FERC accepted, subject to a further compliance filing, PJM’s proposed tariff revisions to its Tariff and Amended and Restated Operating Agreement in compliance with the requirements of FERC Order 841.

FERC requested two items from PJM:

1-To submit tariff revisions reflecting the minimum run-time rules and procedures for every resource.

2- To investigate whether PJM’s minimum run-time rules and procedures were unjust, unreasonable, unduly discriminatory, or preferential as applied to Capacity Storage Resources.

FERC expressed the following concerns:

  • PJM applied a 10-hour minimum run time requirement to Capacity Storage Resources while applying a 4-hour minimum run-time requirement to intermittent resources
  • The 10-hour minimum run time did not reflect the physical and operational characteristics of Capacity Storage Resources.
  • Multiple PJM tariff provisions differed in the treatment of Capacity Storage Resources and Generation Capacity.

PJM ELCC (Effective Load Carrying Capability) Proposal

Before we discuss PJM’s accepted proposal, we need to cover a few key definitions:

Effective load carrying capability (ELCC) is a metric to assess capacity credit for wind plants and any power plant. ELCC can be defined as a measure of additional load that the system can supply with a particular interest generator, with no net change in reliability.

ELCC provides a way to assess the capacity value (or reliability contribution) of a resource (or a set of resources) that is tied to the loss of load probability concept (LOLE).

Capacity adequacy of the PJM system is assessed using Loss of Load Expectation (LOLE). The LOLE is the expected number of hours per year in which, over the long term, it is statistically expected that supply will not meet demand. A standard industry target for the loss of load is not to exceed more than one day in ten years.

LOLE is a probabilistic approach where the actual amount will vary depending on the circumstances in a particular year. LOLE values are generally deduced from a much longer-term average.

PJM uses LOLE to set up the requirement in the capacity market

The Reserve Requirement Study (RRS) is the primary resource adequacy study in PJM.

PJM ELCC PROPOSAL

PJM proposed to classify three types of resources as ELCC Resources:

  1. Variable Resources: Generation Capacity Resource with output that can vary according to energy sources, such as wind, solar, run-off river hydroelectric power without storage, and landfill gas units without an alternate fuel source.
  2. Limited Duration Resources: Generation Capacity Resource such as an Energy Storage Resource that cannot run continuously at Maximum Facility Output for 24 hours or longer, and that is neither a Variable Resource nor a Combination Resource.
  3. Combination Resources: Generation Capacity Resource has a component with the characteristics of a Limited Duration Resource combined with either a component that has the characteristics of an Unlimited Resource or a component that has the characteristic of a Variable Resource.

PJM’s ELCC analysis uses probabilistic modeling to evaluate the contribution of a resource to meeting PJM’s LOLE standard of one day in ten years and distinguished among resources with differing levels of reliability, size, and hourly output profiles to determine an ELCC rating for a given resource or a class of resources (an ELCC rating)

A resource that contributes significantly during high-risk hours will have a higher capacity value (ELCC) than a resource that delivers the same capacity only during low-risk hours.


Critical Points to Measure Capacity Value of a Resource
Source: PJM
  • One intuitive way to measure the benefit would be to run a new RRS, using the original portfolio P plus the new resource X
  • Without any changes to the load, the reliability of the PJM system would be better than 0.1 events/year because there is an additional resource (X) in the system
  • If the peak load is then increased by an amount L, the reliability of the PJM system will be back at 0.1 events/year.
  • The additional peak load (L) that PJM can now serve preserving the reliability of 0.1 events/year is the capacity value or reliability contribution of the new resource X

In the PJM proposal, they contended the following points:

  • The ELCC methodology considers the simultaneous reliability contribution of all resources and recognizes the complementary and antagonistic interactions among resources expected to be able to provide capacity in a given Delivery Year
  • The ELCC construct:
    • recognizes the diminishing returns associated with greater levels of deployment for most ELCC Resource types to ensure the region does not become overdependent on a single resource type with inherent limitations
    • recognizes the synergistic relationship among distinct resource types, potentially facilitating the greater provision of reliability from various resource classes pooled together across the PJM region than whose same classes could provide in isolation
    • evolves with a changing load shape to account for changes in the future grid, such as greater electrification of heating and transportation.
  • ELCC provides a way to assess the capacity value (or reliability contribution) of a resource (or a set of resources) tied to the loss of load probability.

FERC

FERC accepted PJM’s updated ELCC proposal because “it establishes a just, reasonable, and not unduly discriminatory or preferential framework for determining the capacity value of Variable Resources, Limited Duration Resources, and Combination Resources.”

FERC found that PJM assigns a capacity value to the portfolio of ELCC Resources consistent with their collective contribution to meeting PJM’s LOLE standard.

Conclusion

The rationale behind the original RTO paradigm is significant because RTO/ISO markets have struggled to adopt new technologies like batteries. Public policy, technology, and RTO market rules have combined to create tension that will challenge the integration of energy storage resources.

In PJM, all things seem to pass through the eye of the resource capacity hurricane. To their credit, PJM decided to tackle an extremely controversial target, defining capacity value, while revising the tariff to implement an expected massive wave of energy storage resources. The class average ELCC approach reasonably assigns capacity value to resources with the same performance within a class, recognizing that all resources in a class contribute to changes to the overall ELCC of the class.

While FERC’s approval of PJM’s ELCC approach represents a “final” stage of regulatory approval, tariff revisions on energy storage resources will likely evolve over the next few years as technology continues to advance.

 PCI’s goal is to provide clients with (a) consultation and guidance as PJM implements the ELCC methodology and future revisions and (b) to ensure a robust implementation of any deployed changes to the PCI platform.


FERC Order 841 & Energy Storage Integration in Wholesale Power Markets: A Three-Part Blog Series


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