Critics want a state energy agency to take over capacity procurement for the regional grid operator.
The Illinois Power Agency would play a much bigger role in making sure ComEd has the right mix of energy resources lined up for the coming years under an ambitious clean energy bill recently introduced in Springfield.
The Clean Energy Jobs Act would put Illinois on a path to 100 percent renewable energy by 2050, but it would also significantly change the relationship between the state’s largest utility and the regional grid operator for its territory.
PJM Interconnection operates the regional electric grid for all or part of 13 states plus the District of Columbia. That includes day-to-day management of the system as well as annual capacity auctions. Generators that clear the auction are paid for promises to be available if needed at a future date.
Critics in Illinois say PJM’s capacity auctions are biased toward larger power plants and don’t offer enough flexibility to states such as Illinois with ambitious renewable goals. The legislation would task the Illinois Power Agency with creating an alternate capacity auction for PJM’s territory in the state that helps the state achieve its renewable portfolio standard.
“I think the capacity market as it stands is an existential crisis for consumers and the environment,” said David Kolata, executive director of Citizens Utility Board.
Kolata and others also argue that PJM secures too much capacity. Capacity auction results for the 2020/2021 delivery year, for example, show a reserve margin of 23.9 percent, when legally the excess was only required to be 16.6 percent. Northern Illinois customers pay about $1.7 billion a year for capacity, but that could be lower if less capacity were incentivized, said Andrew Barbeau, president of The Accelerate Group and a consultant with Environmental Defense Fund.
A PJM spokesperson wrote in an email that capacity beyond the target reserve margin decreases in price, which ends up lowering the price of all capacity — and therefore saves consumers more money than if PJM only cleared the margin.
But Kolata said this approach incentivizes building capacity that isn’t necessary and will only lead energy prices to continually drop at an unsustainable rate. Plus, he said, PJM incentivizes non-renewable capacity construction, making it impossible for states like Illinois to achieve 100 percent renewable goals.
PJM officials have said that the grid operator must ensure the region as a whole isn’t affected financially by one state’s policies. Critics of the current capacity markets say that given PJM’s priorities, individual states should have more freedom to pursue their renewable goals.
“Ultimately, we think the capacity market is ill-suited to a future world of high renewables and zero-carbon power,” said John Moore, director of NRDC’s Sustainable FERC Project. In the absence of national policies, “it’s up to the states to do what they can” to incentivize renewables, he said, adding that they need to be able to do that without interference at the regional grid level.
States in PJM’s territory have the option to take responsibility for their capacity. A forthcoming ruling from the Federal Energy Regulatory Commission could also allow states to take over only a portion of their procurement.
The new legislation in Illinois allows some flexibility given that FERC has yet to rule, said JC Kibbey, a clean energy advocate at NRDC who helped draft the bill. “It’s a bit of a Catch-22,” he added, since the ruling could affect the legislation, but the state can’t wait on the ruling to move forward.
If the new bill is passed, the state would need to take one of two paths: full or partial responsibility for capacity procurement.
FERC could decide to implement a rule called the “Fixed Resources Requirement – Resource Specific.” Basically, this means states would be able to obtain capacity for specific resource types — for example, wind farms, solar farms and nuclear plants — and obtain the rest of the necessary capacity through PJM’s resources, which would likely include more coal, gas and nuclear power plants.
If FERC decides against that option, or if the final resource-specific rule doesn’t match Illinois’ goals, Illinois could still opt for an option called the Fixed Resources Requirement, in which the state would take over full capacity procurement. ComEd would leave PJM’s capacity market, and a state agency — theoretically the Illinois Power Agency — would procure capacity for those customers. (Ameren, Illinois’ other public utility, is part of the MISO grid operator, which has its own capacity procedures.)
No matter what happens at the federal level, clean energy experts following the FERC developments say the state is well-suited to take over all of its capacity responsibilities.
“I think Illinois is well-positioned to do a full [Fixed Resources Requirement],” said Barbeau, who helped put together the Clean Energy Jobs Act. The Illinois Power Agency, which already procures energy on behalf of the state’s residential and small business public utility customers, could take over capacity procurement from PJM, Barbeau said. He added that doing so would be within the agency’s current capabilities and expertise, and PJM would still maintain grid operations.
Barbeau predicts that, especially based on dropping prices of renewable energy, which is becoming competitive with fossil fuel-based energy, capacity costs will drop as well. He also noted that utilities in other PJM states have opted to fully take over capacity procurement, including AEP and Duke Energy’s Kentucky operations.
Under the legislation, the agency would begin procuring capacity as early as the next capacity auction, currently scheduled to take place in August for the delivery year beginning June 1, 2022.
“We have to address this one way or another, and now is the time,” Kolata said. “We have a great opportunity to decarbonize the grid, but not if we wait.”