The capacity market designed by PJM Interconnection, the nation’s largest organized power market, is presently at a critical juncture. A recent forum hosted by the Federal Energy Regulatory Commission (FERC), involving regulators, consumer advocates, independent experts, reliability authorities, and industry stakeholders, highlighted the urgent need for reforms in the regional markets.
It is clear the current structure of PJM’s capacity market is leading to increased reliability risks, and we commend PJM for taking steps to implement critical reforms necessary to ensure resource adequacy, grid reliability and resilience. According to Jim Robb, President and CEO of the North American Electric Reliability Corporation (NERC), “Markets have demonstrated an incredible ability to drive out inefficiency, but they really haven’t demonstrated their ability to reward the reliability investments that are going to become increasingly valuable as an insurance policy against extreme weather events and common condition challenges such as wind droughts and solar droughts.”
Coal has long served as the baseload of our nation’s power supply, thanks to its secure fuel supply and essential reliability attributes. However, a substantial amount of coal-fired generating capacity has retired nationwide, and more is projected to retire by 2030. We anticipate that new Environmental Protection Agency (EPA) rules will further accelerate coal retirements. This is not just a concern for the coal industry but for everyone who depends on a reliable electric grid.
PJM’s capacity market is faced with the challenges of rising thermal retirements, load growth, and inadequate new resources, predominantly renewables. Without enough resources to compensate for thermal retirements and growing electricity demand, PJM’s “resource mix balance sheet” is leaning heavily toward an unsustainable future.
The value of coal lies in the unique attributes it provides. Over the past six years, at least 18 essential attributes have been identified for a reliable grid, and coal, undeniably, provides many of these. From fuel security to its high accredited capacity value, coal remains a critical component of our energy mix. Its price stability is another crucial factor, providing an economic cushion when other resources are unavailable or too expensive.
Presently, many of these attributes are undervalued or ignored altogether. This oversight results in a less reliable grid, greater risks to resource adequacy, and inadequate compensation to generators that provide these attributes.
Environmental policies are also affecting the market. Manu Asthana, President and CEO of PJM addressed the threat to future resource adequacy, stating, “One of the main factors driving this risk is the design of certain policies with hard date-certain retirement or output restriction requirements before replacement generation exists.” The impact of EPA rules cannot be overstated. We predict that by 2030, six EPA rules, notably the Good Neighbor Rule and the Carbon Rule, will lead to a sharp rise in coal retirements, far exceeding projections from EPA and PJM, and exacerbate the risk of grid reliability problems.
To mitigate these risks and to maintain a reliable and resilient grid, America’s Power recommends several immediate steps:
- PJM should act urgently to identify and value the attributes necessary for a reliable electricity grid. Compensation must be provided to the providers of these attributes, which can be incorporated into the Capacity Market, Energy Market, and Ancillary Service markets.
- Flexibility of RMR (Reliability Must-Run) Agreements should be expanded to retain resources that provide essential reliability attributes and to prevent premature retirement of essential units.
- EPA should analyze the potential impact of its rules on grid reliability and design its rules to minimize coal retirements and avoid causing reliability problems.
By valuing all reliability attributes and compensating providers fairly, we can work toward maintaining a balanced and resilient grid. Coal has and continues to be a significant part of our energy mix, and we must recognize its importance to America’s energy future. Without a measured, balanced approach, we risk destabilizing our grid and compromising the very energy security we seek to protect.