February 2025 Volume 7

ENERGY

are willing to provide at a certain price point. Prices are stated in dollars per megawatt day ($/MW-d). This means that for each MW that clears the auction, the generator will receive the auction clearing price every day for the entire planning year. Along the same lines, end-users will pay the auction price of capacity for each MW of demand, as defined by the peak load contribution (PLC). EXAMPLE: A customer with a PLC of 1 MW (1,000 kW) will pay $269.92 every day in capacity costs. ($269.92 * 365 days * 1 MW = $98,520.80). What is a PLC? Peak Load Contribution (PLC) is a defined figure for every elec tric meter within PJM. The number is determined by calculating the average electric demand (in MW) for each meter as recorded during the five highest-demand intervals during the prior summer (referred to as 5 Coincident Peak, or 5 CP hours). PJM assigns a PLC value to each meter based on its individual contribution to total load when the grid is under the most stress. These 5 Coinci dent Peak hours typically take place on summer weekday evenings between 4pm and 8pm. In 2023, the 5 CP hours occurred on July 27, Sept 5, July 28, Sept 6, and July 5. All of these occur rences took place between 5pm-6pm when grid demand exceeded 137,800 MW. PLC values for 2024 were determined by each meter's electric demand during these summer 2023 hours. What Else Should You Know About PJM's Base Residual Capacity Auction? • A total of 133,684 MW of capacity cleared in the Base Residual Auction. Incremental auctions will be held in the future to secure additional capacity for 2025/2026. • Resources clearing in the auction included natural gas (48%), nuclear (21%), coal (18%), Demand Response (5%), hydro (4%), wind and solar (1% each). • The 2026/2027 Base Residual Auction is scheduled to take place in May 2025.

Can Anything be Done to Avoid These Cost Increases? The auction established the value of each MW of capacity. That makes up one half of the equation that establishes final capacity costs, and this change was unavoidable. The other half of the equation is manageable, as it depends on electric demand during the 5 CP hours. Lower PLC values will result in reduced electric supply costs. Opportunities to control PLC values include demand response, energy management software, load shifting, energy effi ciency, and energy storage. What is a Capacity Auction? In a capacity auction, the grid operator dictates how much capacity will be required to meet demand in future years. Power generators then determine how much electricity they will be able to provide at a given price. Once the amount of electricity offered meets the target demand figure, the price of the final MW entered into the auction sets the clearing price. PJM hosts annual capacity auctions in order to secure generation resources to meet expected demand in future years. Capacity payments are made to electric generators, efficiency resources, and Demand Response assets that have demonstrated the ability and willingness to generate (or curtail) electricity during periods of peak grid demand. Capacity payments are an additional revenue stream for power generators on top of energy payments received for every kWh of electricity generated (or avoided) in the wholesale marketplace. The purpose of these auctions is to provide price signals to investors who can then determine whether or not it makes sense to invest capital to build a new power plant. Typically, these auctions occur three years prior to the delivery period to allow ample time planning and participation. Due to numerous delays by PJM and FERC, this latest auction took place less than a year before the changes will take place, allowing little time for consumers to budget or take action to reduce peak load contribution (PLC) values. How are Capacity Costs Calculated? All types of electric generators (natural gas, nuclear, coal, wind, solar, etc.) bid in certain amount of capacity (in MW) that they

FIA MAGAZINE | FEBRUARY 2025 11