The Federal Energy Regulatory Commission this morning directed the nation’s largest grid operator to establish new rates for a minimum price floor that could freeze new renewable resources from participating in its capacity markets.
The order – approved on a 2-1 vote, along party lines – tasks PJM Interconnection LLC with implementing reporting back within 90 days about how the new rule balances competing energy sources in its capacity market.
FERC’s action injects the federal government further into the yearslong battle over whether PJM should set some type of price floor for capacity bids with the purpose of helping traditional fuel sources better compete.
That comes as states look to bolster nuclear energy and renewable technology through subsidies via emissions programs and renewable portfolio standards.
The replacement rate, opponents say, would effectively set up an additional barrier for new builds of state-required renewable resources in PJM and may have wider consequences for the clean energy transition.
Originally rejected by FERC in 2018 over concerns it represented an “unjust and unreasonable” policy, follow-up efforts by PJM to set capacity rules for its 2022-2023 generation needs have not made any progress.
FERC issued an order for PJM to delay its auction in August after no clear consensus had emerged about the capacity market rules.
PJM has a footprint across the Mid-Atlantic and into the Midwest that includes some 65 million electric users.
According to FERC Chairman Neil Chatterjee, the move would build off a previous proposal from PJM about its capacity markets in 2018 by requiring an expanded minimum offer price rule for any new or existing resources that receive a state subsidy.
“An important aspect of competitive markets is that they provide a level playing field for all resources, and this order ensures just that within the PJM footprint,” Chatterjee said.
Today’s order would exempt existing renewable resources that participate in state renewable portfolio programs.
Also exempt are existing demand response, energy efficiency and storage resources, and competitive resources that do not receive state subsidies.
“We effectively grandfather these existing resources,” Chatterjee said.
Democratic Commissioner Richard Glick predicted it could raise prices by as much as $2.4 billion for customers.
“It is a bailout, plain and simple,” Glick said in his dissent. “The order amounts to a multi-billion-dollar-per-year rate hike for PJM customers.”
Renewable energy groups and environmental advocates have lobbied that price floors would effectively block clean energy sources from participating in capacity markets.
“While cities and states are rapidly expanding their clean energy goals, FERC is constructing barriers that make it more difficult and expensive to choose renewable resources in the PJM capacity market,” said Katherine Gensler, vice president of regulatory affairs at the Solar Energy Industries Association.
“This action is misguided and does a disservice to states that are listening to their constituents’ demands for clean energy,” she added.
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