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PJM’s 2022/2023 BRA results: what do they mean?

PJM’s 2022/23 BRA results: what do they mean?

The PJM auction cleared lower than expected, making now a great time to augment your Demand Response (DR) revenues with new value streams like Sync Reserves

PJM’s capacity market ensures long-term reliability and stability of the grid by ensuring the appropriate amount of power supply resources to meet predicted energy demand. The capacity market enables organizations in the PJM region to turn energy from a cost to a revenue stream – enrolled DR customers are called upon to curtail their energy consumption during times of peak demand emergencies on the grid and are compensated a set amount for that reduction in usage for the course of the event.

The amount that DR customers are compensated for their participation in the capacity market is set forth each year in PJM's DR capacity auction, or Base Residual Auction (BRA). The BRA basically plans future capacity three years in advance, procuring future MW and determining capacity payments that DR customers will receive for participating in the capacity market.

The 2022/23 auction closed on June 2, and clearing prices were much lower than expected – about half the 2021/22 price in just about all regions throughout the PJM territory. Below is a graphic illustrating auction results by region.

Average prices per MW-year

What do these results mean for current DR customers in PJM?

Basically, PJM customers will earn less revenue for their DR participation – in some regions more than 50% less – in the 2022/23 season as opposed to 2021/22. For example, if you are an organization in the RTO region in western PA/Ohio and have been participating with 1 MW of curtailment this year, the value generated is $51,000. In the 2022/23 season, however, that same level of curtailment will be worth just $18,000. As demonstrated in the above map, revenue opportunity depends on where your organization is located and ranges from $18,000 per MW-yr to $46,000 per MW-yr – a decrease from a high of $74,000 per MW-yr in some regions.

There are many reasons for why prices may have dropped so significantly. Some of the main drivers are below:

1.)  Less time between the BRA and the delivery year

Traditionally, the BRA is held each May to allocate capacity three years in the future and has to include three years of growth forecasts to ensure adequate supply. Due to regulatory changes, the auction was delayed and has now been held with only one year until delivery. This has reduced the uncertainty of load growth and potentially reduced the capacity required to be purchased in the auction.

2. PJM Reliability Requirement was reduced by 31,000 MW of capacity with Dominion Energy Virginia exiting the auction

Concerned over changes to market rules and their potential impact on Virginia’s ambitious renewable energy targets, Dominion Energy Virginia – which covers much of Eastern Virginia and a chunk of North Carolina – opted out of the BRA to, in their decision making, better serve their customers. With Dominion leaving the capacity market, PJM’s Reliability Requirement dropped by 31,000 MW of capacity.

3. PJM procured fewer MW in total than in prior years

Primarily due to the two reasons mentioned above, PJM procured 144,477 MW total in the 2022/23 auction as compared to 163,627 MW total for 2021/22, creating less opportunity for organizations to participate in the capacity market and therefore lowering pricing.

The capacity markets are complex, and there are many other factors that affected the outcome. Centrica Business Solutions is here to guide you through the changes and get you the greatest payment possible. One way to increase DR value is by participating in the Synchronized Reserve program.

Increase DR value with Sync Reserve participation

The lower-than-expected prices in the 2022/23 capacity market make now a perfect time to consider participating in new value streams like the Synchronized Reserve (Sync Reserve) program. You can leverage your site’s existing flexibility to generate more DR revenue by participating in the Sync Reserve program in addition to the capacity market. The Sync Reserve program is an ancillary service DR program that helps the grid to balance supply and demand throughout the day on an hourly basis as part of daily system operations.

If enrolled organizations are called on to participate when there is a Sync Reserves event, they need to respond quickly on very short notice (within 10 minutes). However, by managing power flexibly and reducing flexible load for 10–20 minutes on short notice, organizations can generate a new, recurring revenue stream on top of capacity market earnings. With 2022/23 capacity market value dropping so significantly, this can be a particularly attractive option for many organizations in the PJM region.

How we can help

Centrica Business Solutions enables organizations to participate in Sync Reserves by bringing together a range of technologies that deliver an unrivalled, fully automated Demand Management and monetization capability across your assets. Our industry-leading automated DR technology makes it simpler for you to earn revenue and access previously unavailable, quick-response and lucrative market opportunities. Our technology enables 10-minute response time to meet the requirements of PJM’s Sync Reserve program and we settle market payments with PJM on your behalf when you are selected to be a resource and based on your performance when you are dispatched during an event.

Contact us today to maximize your DR revenues by participating in Sync Reserves. We will identify areas of flexibility in your current operations, install the appropriate metering equipment, and leverage our automated technology to monetize your flexible assets in the Sync Reserve program – maximizing your revenue streams.