PJM Rule Changes Could Reduce Revenue for Energy Storage

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The PJM Interconnection has made a temporary change in the rules for its frequency regulation market that could mean lower revenue and market participation for energy storage.

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The proposed rule — which still requires approval by federal regulators — addresses price spikes, or “price excursions,” observed by PJM staff.

Reinstates floor value

PJM stakeholders endorsed a rule change that would reinstate a floor value of 0.1 for the “benefits factor” the regional transmission organization uses to compensate for different types of frequency regulation resources.

Two types of resources can participate in PJM’s frequency regulation market: Reg D for fast responding resources, such as batteries, and Reg A for conventional resources, such as gas turbines or hydropower. PJM has only one market for frequency regulation, however, so the benefits factor is designed to create equivalence between offers from the two types of resources.

PJM set the benefits factor floor value at 1 in December 2015, but modified it in January 2017 and then effectively removed it in August 2018.

When the benefits factor fell to values approaching zero it would skew the results of the equations that PJM uses to score offers in the frequency regulation market. The benefits factor is always present as a denominator in those equations, which also include values for a performance score and a lost opportunity cost.

In cases where the benefits factor fell to less than 0.1 and the lost opportunity cost was above zero, PJM observed regulation market clearing prices as high as $7,000/MWh. Between May 1, 2018 and Aug. 31, 2018, PJM observed 80 intervals where the regulation market clearing price was above $500/MWh and 16 of these hours had marginal benefits factors less than 0.1. By way of comparision, the weighted average clearing price for regulation was $32.99/MW in the first six months of 2018.

“PJM’s incremental solution appears to provide a haircut on energy storage resources…”

The recent rule change, which must still be approved by the Federal Energy Regulatory Commission (FERC), could effectively limit the amount of energy storage, or Reg D resources, that clear PJM’s frequency regulation market, but “it will only be the tail end of Reg D that won’t clear,” said Lisa Morelli, manager of real time market operations. In PJM’s analysis, some Reg D resources would not clear in only 2.5 percent of the hours.

PJM chose the new benefits factor floor value in an effort to minimize the amount of resources that would be affected and to minimize the price excursions, Morelli said.

How much less for energy storage?

“From an energy storage standpoint, PJM’s incremental solution appears to provide a haircut on energy storage resources,” said Travis Stewart, senior associate at Gabel Associates.

However, the exact level of decreased revenues that the change would bring about has not been determined, however, because the majority of stakeholders refused to provide PJM with the opportunity to reveal that data.

If the proposed rule, which Morelli called a stop gap measure, does go forward, it could affect the benefit-cost analysis of developers pursuing projects that sell into PJM’s frequency regulation market, whether the project is a standalone energy storage device, an energy storage device that is part of a microgrid, or is a generator, either standalone or part of a microgrid.

Revising market

Meanwhile, PJM is preparing to take a second attempt at revising its frequency regulation markets. In June 2017, PJM proposed eliminating the benefits factor and replacing it with a “marginal rate of technical substitution.” FERC rejected that proposal as unreasonably discriminatory against energy storage resources.

PJM is preparing to revisit that effort in the first quarter of the new year. That process would take a wider, more holistic approach to revising the RTO’s rules on frequency regulation. It would require stakeholder comment and could take a year or more before a proposed rule is ready to put before FERC. Meanwhile, the pending rule is going to be filed and would serve to provide a temporary fix to one part of the frequency regulation market, assuming it is approved by FERC.

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