PJM's Synchronized Reserve Market prices were "at or near zero for 19 of 24 hours" during a late-January cold snap, so a federal regulatory filing is planned "to improve how reserve prices are formulated," which drew mixed reactions from industry observers.
In a recap of the independent system operator's performance this winter, PJM said in a statement Monday that the system performed "reliably in the face of extreme temperatures and high electricity demand."
Temperatures across the PJM footprint averaged about 35 degrees Fahrenheit from December 1 through February 28, which is about the same as the average, according to data compiled by S&P Global Platts Analytics. The average low for the footprint during the period was actually higher -- 28.5 degrees F, versus an average of 27.3 degrees F.
However, those lows contained some outliers -- 7.6 degrees F on January 21 and slightly below zero degrees F on January 31.
"During the short but intense cold snap that impacted PJM's footprint between Jan. 28-31, forced outages were slightly higher than normal winter operations, which is typical for extreme cold periods," PJM said. "But overall generator performance was good, and continued to show marked improvement over the polar vortex winter of 2013-2014."
In an email, Kieran Kemmerer, an S&P Global Platts Analytics power analyst, said, "An overall lack of cold weather allowed about 12 GW of new gas-fired capacity to operate without significant issues, which was reflected in power prices (and the resultant spark spreads) as more gas-fired generation operated on the margin at low gas prices."
FEWER FORCED OUTAGES
During the 2013-14 polar vortex, forced generation outages hit as high as 22%, but the January 30-31 event had outages ranging from 8.6% to 10.6%.
If PJM had a problem, it might have called on synchronized reserves ancillary services, which can either provide power to the grid within 10 minutes or quickly curtail load; under high-demand situations, a higher value for such services might be expected.
"On January 31, however, Synchronized Reserve Market prices in PJM were at or near zero for 19 of 24 hours, suggesting that those reserves have little or no value," the statement said. "PJM plans to file a proposal with the Federal Energy Regulatory Commission in the near future to improve how reserve prices are formulated."
In attempting to address low prices for synchronized reserves, PJM's market has "two interactive issues: price formation in real-time energy markets and capacity market," said Gurcan Gulen, principal at G2 Energy Insights, a energy market consultancy based in the Boston area.
"Altogether, I can speculate that prices for synchronized resources were zero for many hours because of too much capacity and/or inadequate valuation of their services," Gulen said.
RESERVE MARGINS
PJM has had a relatively large planning reserve margin -- resource capacity in excess of forecast peakload -- of about 30% for some years, Gulen noted, which has been encouraged by PJM's capacity market, "especially when states subsidize renewables and nuclear plants."
"FERC has not approved any of PJM's capacity market reform proposals," Gulen said.
Regarding price formation, Gulen suggested that PJM might benefit from something like the Operating Reserve Demand Curve price-adder system used by the Electric Reliability Council of Texas, which raises locational marginal prices systemwide as operating reserves approach scarcity levels.
During the CERAWeek by IHS Markit panel discussion titled "Wholesale Power Market Evolution" in Houston, Andy Ott, PJM's president and CEO, said, "We're sort of the last RTO to deal with more comprehensive reserve pricing, at least from our point of view, so you will see a big push this year from PJM ... which is comprehensive reform of our energy and reserve pricing."
"Essentially, we'll price reserves -- at the 10-minute and 30-minute reserves -- in the day-ahead and real-time market, and establish operating reserve demand curves, not unlike what they have here in the state of Texas," Ott said, adding that his staff plans to submit the filing to FERC around the end of March.
Platts Analytics' Kemmerer questioned whether the reforms would achieve the desired ends of raising the value of reserves.
"While modeling and analysis conducted by PJM has reflected an increase in reserve revenues, Platts Analytics maintains that the price signal exhibited by the ORDC will incentivize the supply of additional operational reserves, bringing the price of reserves back down closer to current levels," Kemmerer said.
