Energy Generation Market 101

Making the PJM Power Market Work for You

What’s the PJM Power Market, and why should you care?

It’s the world’s most active wholesale electricity market. And it’s another source of financial rewards for your electrical energy efficiency projects. Watch the video below to learn more about the PJM Power Market:

 

 

 

Fast Facts About the PJM Power Market

PJM Interconnection, LLC is a regional transmission organization (RTO) that coordinates the movement of wholesale electricity in the Mid-Atlantic U.S. PJM also operates competitive wholesale energy and capacity markets and manages the high-voltage electric grid to ensure reliable electricity supply for more than 61 million people within its geographic territory in all or part of these 13 states:

pjm power market

PJM territory is shown in blue.

 

  • Delaware
  • Illinois
  • Indiana
  • Kentucky
  • Maryland
  • Michigan
  • North Carolina
  • Ohio
  • Pennsylvania
  • Tennessee
  • Virginia
  • West Virginia

Who are the members of PJM?
PJM members include:
• power generators,
• transmission owners,
• electricity distributors,
• power marketers,
• large consumers,
• & energy efficiency capacity resource providers like Electric Market Connection (EMC).

What is the RPM?

Electric customers trust that energy will be available when needed and it is up to PJM to balance the demands on the electric grid to ensure energy needs are met at all times.
PJM operates a capacity market, called the Reliability Pricing Model (RPM), which ensures long-term grid reliability by procuring the appropriate amount of power supply resources needed to meet predicted energy demand three years in the future.

What is capacity?

Capacity represents a commitment of resources to deliver when needed, particularly in case of a grid emergency.

A shopping mall, for example, builds enough parking spaces to be filled at its busiest time – Black Friday. The spaces are there when needed but they may not be used all year round. Capacity, as it relates to electricity, means there are adequate resources on the grid to ensure that the demand for electricity can be met at all times. In PJM’s case, that means that a utility or other electricity supplier is required to have the resources to meet its customers’ demand plus a reserve. Suppliers can meet that requirement with generating capacity they own, or with capacity obtained through PJM capacity-market auctions.

Capacity market participants offer or “bid” power supply resources into the market that either increase energy supply or reduce demand. These resources include;
• new generators,
• upgrades for existing generators,
• demand response (consumers reducing electricity use in exchange for payment) and
• energy efficiency upgrades.

What is Demand Response?

Demand Response (DR) requires consumer sites to reduce load during peak periods*.
Has your local utility company ever offered you a rebate for reducing or stopping your electric use during a certain peak times? That’s demand response. When you and your fellow energy consumers reduce your energy consumption during those peak times*, that allows your local utility-and PJM—to use your unused energy to satisfy other demands. Demand Response relies on human behavior and can be called upon when needed, it is therefore considered a dispatchable resource.

*Peak load periods are typically the middle of the summer late afternoon hours with air conditioning running, or during extreme winter events in morning and evening hours when homes and businesses are all using electricity.

Why are Energy Efficiency Projects valuable to PJM?

Unlike demand response, energy efficiency projects permanently reduce energy load. Imagine that your company replaces all the old incandescent light bulbs with highly efficient LED bulbs. This energy efficiency action reduces the energy consumed and therefore lowers the energy demand on the grid. It is a permanent reduction in the energy demand for the same light output. This helps to provide PJM with “capacity” to balance the needs throughout the electric grid, particularly for the future energy requirements.

What is the PJM Capacity Market Auction?

PJM conducts a competitive auction to procure sufficient capacity. Capacity can be met through resources of generation, demand response and energy efficiency. The prices for the capacity will depend on differing needs for capacity in various geographic areas of PJM. PJM Capacity Market auction proceeds can help provide a revenue stream to customers implementing energy efficiency measures.

What are typical Energy Efficiency Capacity Resources?
Typical “Energy Efficiency Capacity Resources” are:
• Lighting Upgrades
• HVAC equipment upgrades
• Chiller upgrades
• Compressed Air retrofits

Electric Energy Efficiency Projects

Unlike demand response, electric energy efficiency projects create a permanent reduction in the energy that PJM needs to deliver. These projects account for about 1% of the capacity available to PJM, but they can make all the difference when a greater demand is placed on the grid in a certain geographical area.

In fact, the PJM Power Market offers rewards for energy efficiency projects that permanently reduce its energy load and allow the newly available energy to be diverted to higher-demand markets.

How Do the Rewards Get to Me?

PJM treats electric energy efficiency projects as resources that can be bought and sold on its forward capacity market. The prices PJM pays for those projects are determined by the geographical area in which the projects are available and the demand level in those markets at the time of auction.

Only PJM members—which include power generators, transmission owners, electricity distributors, power marketers, large consumers, curtailment service providers, and energy efficiency capacity resource providers—are allowed to bid projects into the PJM Power Market. Electric Market Connection (link to About Page) is one of those members, and our partners need us to be able to qualify and bid their projects into the market.

When EMC offers your project into the PJM capacity market, we pass earnings on to you. Specifically EMC will write you a check based on your agreed upon terms & conditions.

Questions?

Understanding the energy generation market is not something that can be done in a day, a week, or even a year. We started this business only after collecting decades of industry experience!

Visit our FAQs page to learn more and don’t hesitate to Contact Us

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