Mid-Atlantic grid operator PJM has submitted a plan that wind and solar industry groups say might shield them from the most harmful effects of the Federal Energy Regulatory Commission order that has upended the country’s biggest capacity market. 

That doesn’t mean, however, that renewable energy groups and states pursuing clean energy policies now support the broader changes that FERC’s December order has forced on PJM, including the controversial minimum offer price rule (MOPR).

In fact, many are still requesting that FERC reconsider the order and planning lawsuits to challenge it, or simply awaiting November’s election, which could shift political power in Washington, D.C. in ways that could lead to FERC's order being overturned. 

“PJM did a lot of good in this compliance filing,” Casey Roberts, staff attorney with the Sierra Club’s Environmental Law Program, said in a Thursday interview. But, she added, “it does not do enough to mitigate the harm.” 

The order from FERC, which regulates the sale of energy across state lines, was created with the purpose of limiting the impact of state subsidies on PJM's capacity market. But the order would have the effect of limiting states' ability to offer incentives to renewables and nuclear plants to help meet their clean-energy mandates. Estimates say it would also increase the costs passed on to the roughly 65 million people in PJM’s footprint, potentially by billions of dollars per year.

Pricing renewables out of PJM's capacity market

Wednesday’s filing from PJM lays out how the 11-state grid operator will comply with FERC’s order to assign a minimum bidding price to all state-subsidized resources, including new solar and wind projects and existing nuclear power plants. Those minimum bidding prices are based on estimates of how much it cost to build and operate the plants. 

Many of those “illustrative MOPR floor offer prices” presented in PJM’s filing — which, to be clear, are averages that could vary significantly from region to region — are far above the historical clearing prices for PJM’s capacity market. The clearing price came in at $140 per megawatt-day in PJM's last auction in 2018 and $76 per megawatt-day in the previous year’s auction. 

Among the potentially worst affected by PJM's compliance plan are offshore wind farms, with average floor prices of $3,146 per megawatt-day; onshore wind power at $1,023 per megawatt-day; and battery energy storage at $1,040 per megawatt-day. 

Solar PV would also face minimum prices that, while far lower than those for wind, still exceed typical clearing prices: $367 per megawatt-day for standard, fixed solar arrays and $175 per megawatt-day for solar equipped with trackers that orient them with the sun. 

The silver lining in PJM's compliance plan

The good news for the renewables industry is that PJM’s new order does offer these projects an opportunity to prove that their construction costs are actually lower than PJM’s averages, and thus reduce their minimum bidding price, through what the grid operator calls a “resource-specific exemption.” 

“The resource-specific exemption is really important, and I think it’s where you see most of the optimism coming from the wind and solar industries,” said the Sierra Club's Roberts.

That’s because it could make it possible for many solar projects, and even some onshore wind projects, to achieve low enough minimum prices to clear the market. 

Amy Farrell, senior vice president of government and public affairs for the American Wind Energy Association (AWEA), echoed that view in a Thursday statement. “Given that flexibility, many wind projects will likely be able to clear in the market. We are encouraged by this short-term solution.” 

PJM’s plan also sets relatively low minimum prices for energy efficiency and demand response, as those resources are based on reducing energy consumption rather than generating energy, and thus come with far lower costs to implement and operate.

Demand-side resources have played an increasingly significant role in PJM’s market, although it remains dominated by natural-gas-fired generators. 

Nuclear power plants in Illinois and New Jersey that have received state zero-carbon subsidies will also be able to compete under the minimum prices set in PJM’s ruling, Roberts said. But other nuclear power plants, such as FirstEnergy’s Davis-Besse power plant in Ohio, are likely to be assigned minimums that will price them out of the market, she said — a fact that may complicate the state’s plan to subsidize the plant under a law it passed last year

Big roadblock for offshore wind

Despite these provisions, “we recognize that significant additional reforms will need to be made to the resource adequacy construct in the long run to allow states to have control over their fuel mixes,” AWEA’s Farrell said. 

FERC’s order will remain a significant roadblock for states seeking to increase their share of renewable energy and carbon-free resources, Roberts said. That’s particularly true for states with major offshore wind plans, including New Jersey, Maryland, and most recently, Virginia, Judah Rose, executive director at consultancy ICF, said in a Thursday interview. 

That has led several states to consider plans to exit PJM’s capacity market through a program called a “fixed resource requirement,” or FRR, alternative, Rose said. Indeed, Illinois’ proposed Clean Energy Jobs Act already includes a plan to remove its largest utility, ComEd, from the market under an FRR

The short-term impact of FERC’s order is likely to be an increase in capacity prices, he said — a shift that could benefit natural-gas-fired and coal-fired power plants seeking those revenues to bolster energy sales. “But in the long term, there’s a lot of uncertainty, especially about what states will do in regard to FRR.” 

More than 55 parties, including the attorneys general of 10 states, have demanded a rehearing of FERC’s order. But FERC has yet to take up those requests, a move that also prevents opponents from filing lawsuits seeking to challenge it. 

What comes next

FERC Chairman Neil Chatterjee justified the MOPR order in December, saying it would prevent state-subsidized resources from “suppressing prices in capacity markets” by better reflecting their costs. 

But FERC’s sole Democrat, Richard Glick, decried the order as an attack on states’ right to determine their own energy policies, by setting up a market regime that’s likely to force them to buy unneeded capacity from fossil-fueled power plants.

In the meantime, PJM is under intense pressure to resume its capacity auctions, now stalled for more than two years. PJM’s plan calls for its next auction to take place no more than six months after FERC makes a final decision on its proposal, which could put the next auction in place by late 2020.

But if any state passes legislation to remove itself from the market, PJM has proposed delaying that auction to as late as March 2021.

An unusual coalition of fossil fuel generator groups and renewable energy and environmental groups that are opponents on the merits of FERC’s order joined forces to demand in a Thursday letter that FERC move quickly to resolve the impasse, which has “caused disruptions to the market certainty that is essential to PJM’s and its members’ success.”