PJM Limits Renewable Energy Resource Capacity Values for Allocation of Capacity Interconnection Rights

On April 7, 2023, the U.S. Federal Energy Regulatory Commission (FERC) issued an Order Accepting Tariff Revisions Subject to Condition (183 FERC ¶ 61,009) approving a PJM Interconnection LLC (PJM) proposal to limit the power capacity values of wind, solar, and hybrid resources within PJM’s recently adopted grid reliability framework.

PJM’s effective load-carrying capability (ELCC) construct is part of its forward capacity market, designed to ensure grid reliability by procuring sufficient generation capacity through auctions held three years ahead of when such resources would be dispatched. Capacity interconnection rights (CIRs) allocated as part of this process determine the amount of energy capacity that resources can provide to PJM’s grid. As more wind, solar, battery, and hybrid resources have been placed in service across PJM’s territory, the ELCC construct was adopted in July 2021 to allocate CIRs to more accurately capture the capacity contributions of these variable resources.

Historically, variable renewable resources received CIRs based on their average summer peak hour capacity factor calculated over the previous three summers. This commonly resulted in variable renewable resources’ receiving CIRs that reflected a lower percentage of their net maximum capacity when compared to conventional generators, whose CIRs were allocated based on their expected peak summer production. In response to concerns that the ELCC process might allow variable resources to offer capacity in PJM’s auction beyond what they could actually deliver to the grid, PJM proposed to further limit CIRs allocable to variable renewable resources based on their historical production during peak summer and winter conditions (accounting for any curtailments due to transmission system constraints) and to cap CIRs for hybrid resources by subtracting the nameplate capacity of storage components, with co-located storage components to apply for CIRs separately.

In its proposal, PJM argued that the changes are necessary to account for system conditions that are expected to change significantly due to member states’ decarbonization efforts and to avoid the risk of overestimating a hybrid resource’s maximum output. FERC agreed that PJM’s proposal would more accurately capture the capacity contributions of variable renewable resources to PJM’s power grid and reduce the chance that capacity sell offers submitted by variable resources exceed their available output.

However, the order drew dissent from FERC Commissioner Allison Clements, focusing on two main concerns. First, Clements suggests the changes could force variable resource owners to make complex determinations regarding whether to apply for increased CIRs without adequate time to make an informed decision and require renewable resources to apply for a greater amount of CIRs in an “extremely congested interconnection queue in order to be effectuated”; PJM is not scheduled to begin processing new applications in the queue until 2026. Second, Clements argues that the proposal’s cap on hybrid resources, reducing the capacity ratings for renewable resources below their true system contributions, “is based on an irrational assumption unlikely to ever play out in practice” made by PJM without adequate justification.

FERC acknowledged in its April 7 order that the immediate effect of the approved changes would be to reduce capacity values of variable renewable resources but suggested that PJM’s proposed timeline for implementation of these new calculation mechanics should help affected resources offset these reductions; the order included an April 10 effective date for the changes.

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