Introduction
PJM Interconnection, the leading U.S. power grid operator, manages wholesale electricity partly or entirely across - Pennsylvania, Delaware, Maryland, New Jersey, Virginia, West Virginia, Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Tennessee, and the nation’s capital. This regional transmission organization (RTO) is also the largest wholesale electricity market worldwide, covering $40 billion of annual electricity transactions. The recent past has highlighted various vulnerabilities within the PJM territory, including interconnection delays, extreme weather events, volatile utility prices, and record-high Renewable Energy Certificate (REC) costs.
Extreme Weather Impact on Grid Reliability
Traditional fossil fuel power plants are being retired faster than clean energy resources are being added, raising reliability concerns and projecting narrow reserve margins in PJM territory by 2028. Extreme weather events like hurricanes and snowstorms can exacerbate an already strained grid and lead to major power outages.
Winter Storm Elliott unleashed record-low temperatures on the East Coast for three days starting December 23, 2022. These sub-freezing temperatures affected two-thirds of the United States, causing an unplanned loss of 70,000 MW in electricity generation. The perfect storm was created when, on December 24, electricity use was 10% higher than forecast, and 23% of PJM’s generating fleet unexpectedly went offline as the equipment did not operate or problems with fuel supply, with gas-fired plants accounting for 70% of the unplanned outages.
To prevent rolling outages, the grid operator urged customers to reduce their electricity usage and issued an emergency waiver from the Department of Energy to allow some generating units to exceed emission limits. Despite these measures, natural gas’s reliability came into question as temperatures plummeted by 30-50 degrees Fahrenheit with blizzard conditions of heavy snowfall and wind gusts over 50 miles per hour. The impact left 1.7 million Americans without power to heat their homes during the Christmas holidays. As a result, PJM generators received a $1.2 billion fine in non-performing penalties from the U.S. Federal Energy Regulatory Commission (FERC) for failing to provide electricity during the emergency.
Weather scientists expect this “once in a generation” storm to happen more frequently, with the stratospheric polar vortex (SPV) becoming more unstable, triggering a jet stream of cold air to shift rapidly south from the Arctic to the U.S., manifesting as a bomb cyclone. While PJM’s year-round capacity market was designed to meet high demand during scorching summer days, the RTO struggles to meet winter needs. The electric grid’s current unpreparedness for extreme weather events like arctic blasts or major snowstorms stems from a lack of investment. Despite a year passing since Winter Storm Elliott, much of PJM territory remains at an elevated risk of insufficient energy supplies this winter due to the slow pace of new projects coming online and the lack of natural gas infrastructure pipelines as coal plants are rapidly being retired.
Interconnection Challenges Delaying New Renewable Projects
Backlogged interconnection queues are creating challenges for PJM-operated states to meet their 2030 clean energy targets. Lawrence Berkeley National Laboratory analysis shows that the cost to interconnect to PJM grid from 2020 to 2022 has doubled compared to the prior 20 years, as the network upgrade costs well beyond the point of connection are also included in this. From 2000 to 2007, the average duration for a project to pass through the interconnection queue and become operational was less than two years. In contrast, from 2018 to 2022, this timeline doubled to over four years. The passage of the Inflation Reduction Act (IRA) in August 2022 further extended timelines, with PJM's backlog ballooning to over 2,700 projects by the end of 2022.
The proposed changes to fast-track solar, wind, and storage projects include a cluster-based approach to review multiple projects simultaneously. While PJM has recently gained approval from the FERC to update its interconnection process, the clearance of its backlog is not anticipated until 2026.
Another issue with the slow interconnection queue is that once a renewable project finally gets reviewed, the local grid may already be at capacity, necessitating costly upgrades such as installing new transmission lines. These upgrades, in turn, can jeopardize the project’s profitability, costing tens of millions of dollars. These project approval delays also risk potentially higher material costs, land becoming unavailable for purchase, and customers losing interest over time.
When proposed projects drop out of the queue, the grid operator must revisit studies for other pending projects and shift associated costs to those developers, leading to additional cancellations and delays. A limited number of power engineers further compounds the delays in conducting the grid connection studies for project approval. Some developers strategically submit multiple proposals without the intention of building them all, hoping that their project will gain approval after another developer pays the steep cost of upgrading the surrounding network, exposing deeper issues into the current system of how grid upgrades are being financed.
Trends in Renewable Energy Certificate (REC) Prices
A renewable energy certificate (REC) represents one megawatt-hour (MWh) of electricity generated from renewable sources. States mandate power producers to purchase and retire a certain amount of RECs per year to comply with Renewable Portfolio Standards (RPS), encouraging gradual investment into renewable energy development.
RECs within the PJM Interconnection had historic highs in Q2 of 2023, with the PJM Tri-Qualified (Pennsylvania, Maryland, and New Jersey) increasing 47% year-over-year to $35.414 per MWh. Beyond the price surge, other unprecedented market conditions have emerged, with Maryland Tier I RECs trading above the state's alternative compliance payment level, designed to act as a price cap.
These record REC prices and associated pricing dynamics are driven by soaring demand, sluggish permitting and interconnection queues, and recent federal and state policy changes. For example, Virginia’s RPS transitioned from voluntary to mandatory in 2021 to cover rising electricity demand mainly from regional tech companies committing to ambitious net zero emissions goals. Furthermore, many REC purchasers have signed power purchase agreements (PPAs) with projects projected to come online but remain stuck in the queue, delaying their RPS deadlines or decarbonization targets. Without enough REC supply coming online to deliver demand, this market imbalance has caused RECs to become extremely expensive.
Policies and Incentives for Onsite Solar and Storage
PJM has proposed incentives for ‘black start’ units, encompassing wind, solar, and energy storage, to accelerate power outage recovery times. Notably, nearly half of PJM Interconnection’s black start units lack firm fuel supplies, rendering the grid operator vulnerable to widespread power outages.
Many PJM-operated states have onsite solar and storage incentives for commercial businesses. For instance, New Jersey’s Successor Solar Incentive (SuSI) Program is an SREC program where the incentive value is determined by the solar system type, ranging from $90 to $110 per SREC. Illinois’ Shines Program makes going solar affordable with SREC incentives for distributed solar generation, community solar, public schools, and equity eligible contractors.
Additionally, federal solar incentives like the investment tax credit (ITC) and production tax credit (PTC) are available for solar projects commencing construction before 2033. The ITC covers 30% of the solar system's total cost, going up to 70% with the adders, and the PTC contributes $2.75 per kWh if the project meets the Treasury Department's domestic labor requirements.
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