There is a lot of media coverage regarding both energy development in Pennsylvania, and the amount of money consumers pay for that energy. The discourse is deep and a little political, so let’s break it down into the essential parts in order to understand the whole picture. This starts with PJM and the energy grid, of which Pennsylvania is a part.
PJM (Pennsylvania-New Jersey-Maryland Interconnection) is a regional transmission organization (RTO) that coordinates the movement of wholesale electricity across a 13-state area in the U.S., serving over 65 million people. Its primary functions include ensuring reliable electricity supply, managing the electricity market, and operating the grid to balance supply and demand efficiently. PJM facilitates competition among energy providers by running an electricity market where electricity prices are determined through bidding. Additionally, it plans for future transmission and infrastructure needs, helping to ensure grid reliability and resilience.
PJM controls the market in which utilities sell electricity to the consumer. This RTO uses several models to calculate what the ‘price’ of electricity should be; these are called capacity auctions. A Reliability Pricing Model (RPM) determines the estimates for capacity auctions, which predicts the amount of energy needed to cover the load and cushion for peak energy demand. Regulating an energy market and determining energy use in the grid is complicated, and there are no exact answers. The auctions determine the values. The price at the auctions is determined by how much energy is being made in the grid and how much energy is being used to simplify as much as possible. This process must also happen 3 years ahead of time, so there will always be some uncertainty and guesswork in doing this.
We are seeing PJM in the news so much because energy demand has changed within the last year. The way that PJM models how much energy is being made in the grid has also changed, creating a lot of discussion regarding the energy market. Here are some of the more significant items and events being discussed in the news currently:
- Prices in the PJM Interconnection’s latest capacity auction hit record highs
- The spike in capacity prices was driven by power plant retirements and increased load, as well as new market rules that aim to better reflect risks from extreme weather.
- There are also new resource accreditation metrics that are designed to reflect how much capacity a resource delivers during system stresses,
- Governor Shapiro submitted a complaint to PJM for rate, citing Interconnection queue issues.
PJM’s last capacity auction in the summer saw an 800% increase in electricity prices, translating to about 14 billion dollars. This is an alarming increase that has everyone, including Governor Shapiro, upset. The reasoning behind this increase is three-fold: First, more power-generating stations are being decommissioned than new power-generating stations are coming online. Two, the increase in load or the use of electricity in the grid has increased rapidly. The load amount has remained roughly the same for the last 5 years but has seen a spike as of this year. This jump can be attributed to some decarbonization efforts but largely due to data centers. Data centers or AI facilities require a lot of electricity to run, and PJM has seen a significant increase in these facilities over the last two years. Lastly, the resource accreditation metrics PJM uses to calculate the rate at which certain fuel types/power stations generate electricity have changed. Many values have depreciated, which is depicted as lower power generation in PJM’s modeling. These market rules have changed to reflect the risk of extreme weather better. The combination of all three factors has created a power deficit and a surge in the price of electricity.
There are some things to consider regarding the decommissioning of power-generating stations. These providers are businesses and will make a decision to close when they consider the business to no longer be profitable. All energy, in one way or another, is subsidized. Given the efficiency and age of some of these power-generating stations, it makes sense to decommission them. Again, these decisions are being made from a business perspective instead of the perspective of providing the best resource for the community. The market will always determine what a for-profit business will do. So, does the clean, green policy have to do with the closure of some of these stations? Yes, in the sense that clean, green forms of energy are more profitable than producing dirtier forms of energy. Should policy changes and an increase in clean energy production be blamed? No. An increase in rates might keep some of these businesses running a little while longer, but they largely cannot keep up with newer, cleaner energy-generating infrastructure.
Another relevant question is why PJM changed its market rules to reflect the risk of extreme weather. Last year, when there was a particularly cold snap of weather around New Year’s, the gas power electricity plants could not generate electricity due to frozen pipes. These facilities were not fit to handle the extreme weather, and as a result, the grid had power outages that caused a loss of service for specific communities. PJM decided to revamp market rules for these stations and others to reflect these issues. The plants could increase their weatherization and reliability to increase their accreditation metric. These changes have been reflected across PJM’s modeling because they generate “less energy” in the model. PJM’s reasoning for this change is to keep the grid reliable and incentivize these businesses to become more reliable.
For this reason, not only gas-fueled energy-generating stations were revamped. Almost all fuel types received a change in their accreditation metric. The increase in extreme weather or changes in typically observed weather patterns is a condition of climate change. As our atmosphere continues to hold more energy, we see more extreme weather events. Pennsylvania has been lucky in that it has some resiliency to these changes in weather patterns due to its relative location from the equator and the patterns of the weather systems it experiences. However, we will still see extreme events like last year’s cold snap, warmer summers, more droughts, stronger storm systems, and other variable effects.
All of these changes have left some big questions for PJM customers. Pennsylvania is one of those 13 states (Plus D.C), and Governor Shapiro has raised concerns about PJM’s struggles with interconnection into the grid. “Right now, the PJM interconnection queue is utterly jammed — an all-time record 3,300 projects were awaiting interconnection earlier this year,” the complaint said. That is “by far the most queued projects of any [grid operator] in the nation.” The interconnection queue is the waiting list of projects attempting to connect to the PJM and generate power for sale in their market. Shapiro criticizes that the process was designed for larger generation stations and energy infrastructure, favoring an older style of power generation as opposed to smaller renewable projects like wind and solar. This has caused a backlog of projects and fewer projects generating power into PJM’s grid. The main component of Shapiro’s argument is that PJM’s backed-up interconnection queue causes fewer power-generating stations to be connected to the grid, inflating the capacity auctions and increasing consumer prices. He argues that to keep artificially high costs from being passed to consumers, PJM must lower its price caps to ensure that utilities pay less for energy.To summarize a complicated process, PJM is attempting to balance its electricity market after a sharp increase in load after years of consistent energy demand. The interconnection queue into the grid has also seen an increase in projects and has created a bottleneck in projects fueling the grid. PJM has said this issue is due to factors outside of their control, including permitting, financing, and global supply chain challenges. It is PJM’s responsibility as the manager of the energy market to anticipate load demands, energy use, and changes in these projections. The changes in energy policy and increases in energy use have created a situation where we see large-scale investment in energy generation. The issue now is that, as PJM selects projects to connect to the grid, it focuses on large-scale projects to quickly meet load demands. This approach focuses on bigger, natural gas-fueled energy projects, skipping over smaller renewable projects. There is no correct and efficient solution to the energy issues. A lot of research and great resources are identifying viable combinations of projects to increase reliability in energy generation while decreasing cost. Sean O’Leary with the Ohio River Valley Institute has published a research brief breaking down PJM’s energy policy in greater detail, citing research suggesting solutions to grid issues. I encourage you to look into this resource.
Are any of the power-generating stations in the queue nuclear? I’ve heard of small-scale nuclear power generation stations being developed at Penn State. I know nuclear can scare folks, but given the right regulations and more robust safety technologies should they not be an option?
There are some in the queue. At this moment in policy, there is more interest in transitioning some generating stations with a small nuclear reactor. Each form of energy has its impacts, which is why PJM needs a broad and informed policy for connection.