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Energy Efficiency Lowers Costs in Recent PJM Capacity Auction

Energy efficiency has increasingly helped companies improve ways of adequate energy production.  An important aspect of the market becoming more energy efficient is that it aids in creating lower prices for electric generation. 

In addition to cumulating a larger capacity of energy-efficient resources such as solar and wind power, there have been installations of new natural gas plants that also positively affect market pricing.  PJM is a fully operating interconnection with strives to become a top leader in the electric industry.  This past summer, the organization closed a generation capacity in an auction where costs paid to power plants were determined and extended for three years.  Falling lower than anticipated, these costs were roughly 40% below the previous year’s prices.

The largest amount of energy efficiency capacity passed at the summer auction held by PJM stood at 1,515 MW.  The greatest supply of this capacity cleared by the auction was that of natural energy resources so, solar and wind power.  This clearing serves as a purpose to help illustrate how system coordinators are incorporating more energy efficiency and ultimately creating a more stable source of energy that can be counted on as well as more beneficial reserves.  The number of megawatts approved by the auction fell under the new demands which are referred to as the ‘capacity performance’ that again, helps entails a stronger confidence in foreseeing energy and reserves predictably.

Energy efficiency continues to help PJM’s overall impact because it lowers general costs and without it, the result of the auction pricing would have been significantly higher.  Economically, using energy-efficient resources proves to be of tremendous benefit.  PJM is categorized by various geographical regions so the bearing of heavier pricing would be a result of specific regions’ energy production.  Although the auction remains silent about detailed pricing options offered there are some companies that have announced plants that were not approved, Exelon being one of them.  Exelon is one of the top providers of energy in the U.S. and post-auction they released a statement saying two nuclear-powered plants were not cleared.  This essentially implies the plants no longer stand in the same competitive field as PJM.  Overall, energy efficiency is having a lasting impact on financial savings for PJM customers worldwide.

Why is Capacity Performance important?

As a result of the auction approvals, the capacity performance comprised around 139,000 MW of standard generation (solar and wind power) as well as a 614 MW of demand response, and 1058 MW of energy efficiency.  PJM’s implemented “Capacity Performance” has redesigned the requirements needed in order to be accepted within the auctions.  In other words, these requirements ensure energy resources are reliable, understood in terms of predictability as well as readily accessible throughout the duration of the entire year.  The auction proved that there was an abundance of efficient resources that withheld these Capacity Performance standards which supports the understanding that efficient energy production can provide a reliant assembly of resources just as nuclear, natural gas, or solar generation.

PJM’s past energy-efficient auctions

For almost a decade the concern of energy efficiency has been one at PJM’s auctions.  The graph below illustrates the cumulative amount of efficient energy that has been approved over the course of the past eight years.  As stated before, the auction also projects three years in advance after the year of the auction.  Comparing the years 2012 to 2013 and 2019 to 2020 there is a drastic increase in energy efficiency, practically three times more in the upcoming future years.  Not all increases and savings are included in this graph.  

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