Capacity Performance Proposal. Summary of Key Design Elements

Transcription

1 December 3, 2014

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3 Capacity Product Synopsis PJM Interconnection is proposing a single capacity product called Capacity Performance, similar to the ISO New England Pay-for-Performance design, which would be transitioned into PJM s Reliability Pricing Model starting in the 2016/2017 delivery year with full implementation for the 2020/2021 delivery year. Product Definition The Capacity Performance product is an obligation to deliver energy, if scheduled and dispatched by PJM, during Compliance Hours. Compliance Hours Compliance Hours are the hours during the delivery year when PJM implements any emergency procedure event requiring implementation of Demand Response or the loading of emergency capacity. Performance Obligation Each resource is required to deliver its pro-rata share of system requirements during Compliance Hours. The resource s pro-rata share is calculated during Compliance Hours as the lesser of the resource s cleared capacity megawatt quantity times the ratio of real-time demand plus reserves divided by PJM s total quantity of cleared capacity megawatts and the resource s economic dispatch point, net of any PJM-approved outages. Performance Payment If a resource delivers less than its pro-rata share of system requirements during a Compliance Hour, it will pay a Performance Payment equal to the megawatts of shortfall times the Performance Payment Rate. The proposal generally adopts the no excuses approach similar to ISO New England s, except that it provides a performance exception for resources not scheduled or dispatched by PJM. The proposal requires delivery of energy during high-load periods when PJM enters emergency operations. It eliminates out-of-management control exemptions. Performance Payment Rate The Performance Payment Rate is the Net Cost of New Entry (in $/MW-year) multiplied by the number of days per year and divided by the expected number of Compliance Hours per year. Allocation of Performance Payments Performance Payments collected from under-performing resources are allocated pro-rata to all over-performing resources in the hour, even those with no capacity commitment. In order to avoid a Performance Payment, under performance by resources can be offset by an over-performing resource that did not have a capacity commitment. Coupled Offers Resources may elect to offer as a coupled resource to share the Capacity Performance commitment. This feature may be utilized by intermittent resources or seasonal resources to satisfy Capacity Performance standards. Base Capacity Capacity Resources that satisfy the current annual resource product requirements as defined in the PJM Tariff and Manuals generally would qualify as Base Capacity although PJM will clarify the operational requirements applicable to Base Capacity resources during stressed system conditions. PJM P a g e

4 Stop-Loss Provision In order to moderate risk for Capacity Performance resources, PJM proposes to adopt a modified version of the New England stop-loss model adapted to PJM parameters. The stop-loss amount represents an upper bound on the Performance Payment charged to a resource. The monthly and annual stop-loss amounts would be calculated as follows: Annual stop-loss equal to 1.5 multiplied by the Net Cost of New Entry, multiplied by the resource s committed megawatts, multiplied by the number of days per year. Monthly stop-loss is equal to the annual stop-loss divided by three. High Availability Requirement Capacity Performance resources cannot be offered into the Energy Market as emergency-only resources during hours when PJM has issued a Hot or Cold Weather Alert. Each Capacity Performance resource must be available for at least 700 hours of non-emergency operation in the delivery year at or above its cleared capacity megawatt amount. Resources that are not scheduled by PJM solely because their price offers are greater than their cost offers and, therefore, are not operating during Compliance Hours are subject to Performance Payments. Cleared Capacity Resources must offer into the Day-Ahead Energy Market at the Installed Capacity (ICAP) value equivalent to their cleared capacity commitment. Demand Response In order to reduce regulatory complexity, PJM proposes to separate the demand response jurisdiction issues from its Capacity Performance proposal. For the Capacity Performance filing, demand response would remain on the supply side, but demand response products would be conformed to the Capacity Performance approach. Limited demand response would be eliminated. Demand response would be a commitment to peak shave. Annual demand response would be converted to a Capacity Performance product, and summer demand response would be treated as Base Capacity during the transition period. However, PJM believes that demand response should evolve to be a demand reduction commitment, i.e. a commitment to peak shave that is modeled on the load side of the capacity auction. Energy efficiency resources that represent year-round reduction could offer as Capacity Performance. Energy efficiency that does not provide reduction in the winter would be treated as Base Capacity. PJM P a g e

5 Short-Term Resource Procurement Target The Capacity Performance proposal would eliminate the short-term resource procurement target, also referred to as the 2.5 percent holdback. In order to recognize stakeholder concerns regarding the forward load forecast being consistently too high, the proposal includes PJM s commitment to adjust its load forecast to recognize the recent trends and impacts of energy efficiency after which the 2.5 percent holdback no longer would be necessary. Cost Allocation PJM proposes to change the cost allocation for Capacity Performance from the current five-coincident-peak method to a method that allocates costs over all compliance hours in the year and the five coincident-peak hours. Capacity Market Must Offer Requirements and Market Power Mitigation During the 2018/2019 and 2019/2020 Delivery Years in the transition period, Base Capacity has the same must-offer requirement as in the current capacity market construct, and mitigation for base-product offers remains the same, i.e. avoided cost reference. All resources must offer as the Capacity Performance product unless a resource can demonstrate that it physically cannot meet Capacity Performance qualifications. The offer cap for Capacity Performance product offers is equal to the Net Cost of New Entry. If a resource desires to offer above the Net Cost of New Entry, its offer is subject to cost-based offer review per the current processes if it fails the three pivotal supplier test. Flexibility Requirements Capacity Performance resources must limit offer parameters to physical resource limitations. The Independent Market Monitor and PJM (per the current process) will establish parameter limits for each resource based on history and review with the resource owner. During Hot or Cold Weather Alert periods, resources must use the Capacity Performance parameter limits. Also during Hot or Cold Weather Alert periods, the following procedures will be used: o o Resource notification time cannot exceed one hour; PJM will schedule a resource based on Capacity Performance parameter limits except that resources with startup times greater than 14 hours are expected to take steps to be available for scheduling with a 14-hour lead time, and, consequently, all such units will be treated as having a 14-hour start time for scheduling purposes; and PJM P a g e

6 o Any resource that enters parameters that exceed the Capacity Performance parameters will not be eligible for make-whole payments in excess of capacity parameter limits, and the resource remains subject to Performance Payments. Capacity Performance Transition Transition Mechanism for 2015/2016 PJM acknowledges stakeholder comments that it may not be feasible to begin implementing the transition to Capacity Performance in 2015/2016 due to the short time available for investment in winterization, dual-fuel capability, firm fuel contracts, etc. PJM believes an incremental capacity procurement is necessary in order to procure more capacity resources to at least partially cover the shortfall for winter 2016 that may be caused by the observed trend of degraded generation availability. In order to reduce transitional costs and to recognize the short time-window for investment, PJM proposes to conduct a procurement process for resources that are not currently committed. This targeted procurement will seek to procure up to 2,500 MW of additional Capacity Resources for the winter season (December 2015 March 2016) under a reliability-must-run type mechanism. Transition Mechanism for 2016/2017 and 2017/2018 For the 2016/2017 and 2017/2018 delivery years, PJM believes the transition to Capacity Performance standards must begin to ensure investment in resources that can perform during extreme weather events and peak demand conditions. In order to address the reliability shortfall caused by fuel security, winter availability limitations and performance shortfalls, PJM proposes to hold an incremental auction for each of these delivery years to procure a sufficient amount of capacity that adheres to a transitional version of the performance standards and requirements of the Capacity Performance product described above. For the 2016/2017 Delivery Year, PJM will hold an auction to procure a transitional version of the Capacity Performance product with the following characteristics: Availability and flexibility requirements will be as described above; Performance penalty structure will be as described above but with the magnitude of non-performance penalties reduced to 50 percent of the 2018/2019 values and the maximum penalty exposure in the stop-loss calculation reduced to 0.75 multiplied by the Net Cost of New Entry, multiplied by the resource s committed megawatts, multiplied by the number of days per year; The incremental auction process will establish the amount of the Capacity Performance product targeted to be procured at 60 percent of the reliability requirement with a price cap of 0.5 times the RTO Net Cost of New Entry. Resource offers will be capped at 0.5 times RTO Net Cost of New Entry. If a resource that already has an RPM commitment for the Delivery Year clears as Capacity Performance, the Capacity Performance commitment PJM P a g e

7 replaces its previous commitment. Therefore, its capacity payment for the year will be the Capacity Performance clearing price instead of the previous RPM auction clearing price; and The clearing price for Capacity Performance will be set by the marginal resource offers. If the target amount of Capacity Performance is not cleared, the clearing price will be capped at 0.5 times RTO Net Cost of New Entry. For the 2017/2018 delivery year, PJM will hold an auction to procure a transitional version of the Capacity Performance product with the following characteristics: Availability and flexibility requirements will be as described above; Performance penalty structure will be as described above but with the magnitude of non-performance penalties reduced to 60 percent of the 2018/2019 values and the maximum penalty exposure in the stop-loss calculation reduced to 0.9 multiplied by the Net Cost of New Entry, multiplied by the resource s committed megawatts, multiplied by the number of days per year; The incremental auction process will establish the amount of the Capacity Performance product targeted to be procured at 70 percent of the reliability requirement with a price cap of 0.6 times the RTO Net Cost of New Entry. Resource offers will be capped at 0.6 times RTO Net Cost of New Entry. If a resource that already has an RPM commitment for the Delivery Year clears as Capacity Performance, the Capacity Performance commitment replaces its previous commitment. Therefore, its capacity payment for the year will be the Capacity Performance clearing price instead of the previous RPM auction clearing price; and The clearing price for Capacity Performance will be set by the marginal resource offers. If the target amount of Capacity Performance is not cleared, the clearing price will be capped at 0.6 times RTO Net Cost of New Entry. Transition Mechanism for 2018/2019 and 2019/2020 The transition in phasing out Base Capacity allows time for single-fuel gas units, storage and renewable resources to transition to a Capacity Performance standard. This transition will lower costs compared with implementing a 100 percent Capacity Performance standard in 2018/2019 and will reduce the risk of capacity shortfalls in the transition years. For 2018/2019 and 2019/2020, PJM proposes that 80 percent of total capacity requirements be Capacity Performance and 20 percent be Base Capacity. For 2020/2021 and beyond, PJM proposes that 100 percent of the capacity requirement be Capacity Performance. During the transition, Base Capacity would retain the same rules as the current annual capacity product except that the peak performance penalty structure would replace the peak forced outage metric that is currently used. PJM P a g e