Energy Efficiency Up; Demand Response Down in PJM Capacity Auction

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Energy efficiency cleared PJM’s forward capacity auction in record amounts this year, indicating again that the resource fares well when it competes with power plants in wholesale markets.

PJM Interconnection holds the capacity auction each spring to ensure that it will have enough future resources within its turf. The grid operator serves an area that encompasses 61 million people in 13 states and Washington, D.C.

Energy efficiency won 1,339 MW in contracts, an increase of 222 MW from last year. Almost all of the energy effficiency bid this year – 99.9 percent – cleared the auction, according to results issued May 23 by PJM.

PJM – as well as ISO New England – are pioneers in allowing energy efficiency to participate in capacity auctions.

The auction offers an additional revenue stream for energy efficiency projects, which is expected to spur growth in virtual power plants and other forms of energy efficiency aggregation. Winners receive capacity payments at prices set through competitive bidding. This year’s price is $120/MW-day, except in a constrained area of the grid, where the price is $215/MW-day. The winning resources must be available to PJM from June 1, 2017 to May 31, 2018.

Update: EnerNOC reported May 27 it cleared more than $185 million in capacity payments for about 4,000 MW in the auction. The demand response company said that it expects thousands of enterprise customers throughout the mid-Atlantic region to leverage EnerNOC’s software platform to access the payments.

The amount of energy efficiency clearing the auction has been on the rise for several years.  Earlier capacity auctions resulted in 822.1 MW of energy efficiency for 2014/15; 922.5 MW for 2015/16;  and 1117.3 MW for 2016/17.
capacity auction

The capacity auction accepts energy efficiency bids from projects that use efficient devices, equipment, processes or systems that save energy beyond existing standards (such as building codes).

PJM also accepts demand response bids. But that resource saw a decline in winning contracts. PJM procured 10,975 MW, a 1,433 MW drop from last year. Of those demand response projects bidding,  97.2 percent cleared the auction.

PJM offered a silver lining for demand response. While the overall amount of demand response is down, the type offered will better serve the grid, according to PJM. Specifically, the auction brought less ‘summer-only’ demand response and more annual and ‘extended summer’ demand response.

This shift gives system operators the opportunity to rely on demand response more throughout the year. Demand response is typically needed on hot summer days. But the grid has seen new strain at other times of the year because of severe weather. For example, PJM had to call on demand response in September 2013 and January 2014.

The future of demand response in the auctions is somewhat murky because of a  ruling last week by the U.S. Court of Appeals for the D.C. Circuit. The court vacated a federal order meant to guarantee that demand response has a place in wholesale markets. PJM said that the ruling has no immediate impact on the auction results.

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Of course, power plants remain the largest capacity resource for PJM. In total, the auction closed with commitments from 167,004 MW of power, energy efficiency and demand response capacity. Not surprising, the region continued its shift toward gas-fired generation, with 4,800 MW of new combined-cycle generation clearing.

More details about the auction are here.


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About Elisa Wood

Elisa Wood is the chief editor of She has been writing about energy for more than three decades for top industry publications. Her work also has been picked up by CNN, the New York Times, Reuters, the Wall Street Journal Online and the Washington Post.