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:
- North Carolina
- 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?
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?
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?
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?
What is the PJM Capacity Market Auction?
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 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.
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!