Policy & Regulation

PJM’s capacity auction results show the need for more demand response

PJM’s capacity auction results show the need for more demand response
PJM control room (Courtesy: PJM)

PJM’s capacity auction for the 2025/26 delivery year provided higher capacity prices than anticipated.

While the rest of PJM cleared at $269 per MW-day, Baltimore Gas & Electric and Dominion zones cleared at $466 and $444 per MW-day, respectively. PJM says it is concerned that “38,000 MW of resources currently have already cleared PJM’s interconnection queue but have not been built due to external challenges, including financing, supply chain, and siting/permitting issues,” but the bigger problem is the drop in demand response in this auction due to new capacity accreditation rules.

This latest PJM capacity auction is showing new rules of capacity accreditation work for fossil resources but not for renewables and demand response.

Only 8,000 MW of demand response was offered in this auction

What is surprising about this auction is that only 8,000 MW of demand response was offered, compared to more than 10,000 MW offered in earlier auctions (2017/18 – 2021/22). The last three auctions before the current 2025/26 auction had an average of approximately 9,400 MW offered into the capacity market. It is puzzling why 1,400 MW of DR was not offered in this auction. One reason could be PJM tightening rules around capacity accreditation in this auction after Winter Storm Elliott. FERC approved PJM’s new rules in February, which led to this capacity auction being delayed to July instead of the scheduled June auction.   

Submit a case study! We want to hear about what you’re working on. Submit a case study with the chance to be featured in Renewable Energy World. 

The new capacity accreditation for DR marks a significant shift. The 8,000 MW of offered capacity translated into 6,363 MW of DR, receiving 80% of capacity credit in the new marginal Effective Load Carrying Capability (ELCC) method, compared to coal and natural gas, which received 100% of capacity credit. This comparison is a clear example of marginal ELCC capacity accreditation penalizing DR.    

First auction with new capacity accreditation values for renewables

There are legitimate concerns about the total $14.7 billion cost of this latest PJM auction to load. This cost is seven times the cost to load compared to the previous auction. Part of the reason is the new marginal ELCC methodology applied to all resources, but renewables, which have no fuel costs, bore the brunt of this new methodology.

If state regulators and consumer advocates are paying attention to capacity markets, one key takeaway from PJM’s latest capacity auction is the impact of marginal ELCC for demand response and renewables on capacity costs. Both DR and renewables are low-cost resources, yet due to the ELCC penalties, they are unable to offer more in the capacity auction. New York ISO has this exact issue with a reliability-based DR program called Special Case Resources, which are lumped in a 4-hour energy duration limited category that provides 60% capacity credit instead of a 6-hour category, which provides 80% credit. With an 80% capacity credit for DR at PJM, the auction cleared at a $14.7 Billion cost to load; one can only imagine what the cost to load would be if DR were given only 60% credit. The main point here is renewables and DR go hand-in-hand to provide reliability, and with the new marginal ELCC calculations, both are penalized.     

It is true that in the latest PJM capacity auction generation supply decreased due to retirements, and load increased due to data centers. However, the main reason from a demand response and renewables perspective is that these resources were penalized due to the marginal ELCC method of calculating capacity credit.

Suppose new generator interconnections are delayed even after interconnection agreements are signed, which PJM emphasized earlier this year. In that case, PJM and other RTOs share the responsibility to look closely at demand response and other demand side solutions. So far, PJM, MISO, SPP, and NYISO are looking closely at DR but from a penalty perspective, not how to incentivize. Simply painting DR and renewables with the same ELCC brush doesn’t translate into being “technology agnostic”. The load is ending up paying the cost of this PJM inaction.