America’s biggest grid operator, named simply PJM, has proposed some serious revisions to how much it will pay power generators to be there when needed. The good news is that renewables will be downgraded. The bad news is that what PJM proposes is nowhere near what we need to prevent catastrophic blackouts.
We are talking about what is called PJM’s “capacity market”. Basically, it means that power producers first offer to guarantee to make their generating capacity available when needed. Then prices are somehow agreed to, and capacity contracts are made between PJM and the willing producers.
The whole process is extremely complex, and I do not pretend to understand the inner workings. The proposed reforms alone take about two thousand pages, all written in the abstruse jargon of guaranteed power at a future time. But the gist is clear enough.
Before looking at the reforms, it is important to know what is driving them, which is the so-called energy transition. Bear in mind that power generation is regulated by the States, not the Feds, and a PJM is sort of a Fed. Their reforms have to be approved by the Federal Energy Regulatory Commission (FERC).
Reliable generators are being shut down at a rapid rate, especially the coal-fired ones, often due to state policy or mandate. Even when the shutdown is a utility decision, it still must be approved by the state regulatory authority as in the public interest.
It has become clear that shutting down all this reliable generation and trying to replace it with renewables leads to severe reliability problems. Numerous warnings have been issued by FERC and the grid operators, including PJM. The catastrophic Texas blackouts, followed by a reliability emergency at PJM at Christmas 2023, led to the present rushed reforms.
The core of the reforms is about an extremely technical computation called the “Effective Load-Carrying Capability”, or simply ELCC.
Here is a simple explanation of ELCC: “Adding up the capacity available to meet resource adequacy needs is significantly more complex for a power system with a high proportion of non-firm resources. Planners must have a thorough understanding of the system conditions that can lead to loss of load, and the statistically-likely performance of variable resources such as wind and solar during those events. Characterizing the severity and frequency of events that may occur only once every several years requires tremendous amounts of data and computing power. This complexity is compounded by the fact that non-firm resources have interactive effects — solar, wind and storage resources often complement each other, meaning that a system with all three resources present will be more reliable than a system with just one or two.”
“To make sense of these dynamics, the industry is increasingly turning to Effective Load-Carrying Capability (“ELCC”) as the preferred method of measuring the capacity contribution of non-firm resources. Born out of the tradition of “loss-of-load-probability” modeling that system planners have long utilized to determine the planning reserve margin needed to ensure reliable electric service, ELCC is a natural extension of those methods to the problem of non-firm resources.”
In the PJM capacity market, ELCC is used to decide how much capacity is needed overall and then to assign a reliability value to every proposed capacity. It also helps determine the price PJM will pay for that capacity. Roughly half of the two thousand pages of proposed reforms have to do with ELCC. PJM wants to switch from “Average ELCC” to “Marginal ELCC”, but I am not going to try to explain the difference.
The good news is that Marginal ELCC values increasing renewables a lot less than Average ELCC. This makes sense as adding more solar does not increase reliability at night, and adding wind does not increase reliability when it is calm.
The bad news is that the PJM capacity market is unlikely to prevent catastrophic blackouts. There are several reasons for this.
To begin with, ELCC depends on accurately estimating the probability of failure to perform for every generator in the system. This is simply impossible. We are not dealing with a long history of stable technologies that can be assessed statistically. We are dealing with rapidly changing technologies, the performance characteristics of which are unknown.
Nor is the failure to perform a random variable for each generator. Failure is often due to extreme weather occurring on a scare far greater than the PJM territory, so generator unreliability is highly correlated across all of a given type. Note this is true for supposedly reliable generators as well. Both Texas and PJM saw widespread failure of gas-fired generation due to rapidly occurring extreme cold messing up the gas supply system.
Moreover, PJM is just buying capacity for a short period of a few years out. This kind of passing payment cannot bring forth what is really needed, which is a bunch of new, reliable power plants. We are rapidly approaching the point where there will be no reliable capacity for PJM to buy.
The States and Utilities are creating this growing threat of catastrophic blackouts, so only they can solve it. PJM’s efforts are commendable, but they are really just fiddling with a sickening grid.