A Market for Policy

This week I've been studying up on the PJM Interconnect, the world's largest organized power market, serving 61 million consumers in 13 eastern US states.

PJM is also notable for featuring a capacity market, and for fostering more demand response than any other market.

A capacity market pays generators and demand response suppliers to provide capacity -- that is, the ability to meet demand at all times.  In other markets, like Texas and Germany, power providers are paid only for the energy they sell, the megawatt-hours, and not for the ability to produce those megawatt-hours when needed.

Demand response is an old idea that is getting supercharged in the microchip era -- grid operators controlling some power demand and turning it down when needed.  Utilities have been doing this for decades with air conditioners, water heaters, and large factories.  When supplies were tight or very expensive, they would call (on the phone) the factory manager and ask them to throttle back.  Or they would send out radio signals to hundreds of air conditioners, cycling them off to cut demand.

Now, with wireless connectivity and smart controls in all kinds of devices, companies can control demand with increasing sophistication, and pass the savings on to customers.  What used to be "curtailment" is now "demand response."

But both capacity markets and demand response are still evolving in PJM.

This week I reported for Greentech Media that PJM is starting a process to tighten up what it means to be a capacity provider.  In the "polar vortex" of last January, 20 percent of the power plants in PJM were missing in action.  A number of them were gas-fired plants who were saving a few bucks by not having firm access to fuel.  As furnaces cranked up, some power plants were at the back of the pipeline, so to speak, and couldn't run.

Coal and nuclear advocates spun this to say that only traditional, big thermal power plants were "reliable."  But reliability is really the sum of all the parts, not the feature of a single power plant.  Nuclear plants are reliable until, suddenly, they aren't.  PJM has yet to come out with their reforms, but they are likely to be practical and mundane, like so much RTO policy.

Which brings me to the other reform PJM got approved recently, in the way demand response works.  PJM was unhappy that demand response resources couldn’t be activated unless they called an emergency and gave two hours notice.  They got approval in May to change the rules by creating a new category of “pre-emergency” DR resources.  These DR entities (with few exceptions) now must respond within 30 minutes, can have a minimum run time of one hour instead of two, and have revised price caps.  In other words, demand response can be more flexible and certain now.

It's certain that these will not be the last changes in policy at PJM.  Markets need to evolve to account for changing technologies, trends, and actions by market participants.  It's good that PJM has the capacity and the responsiveness to do so.