PJM Capacity Charges & Energy Storage Economics

There has been a steadily growing buzz around energy storage in PJM. Battery storage is increasingly participating in the frequency regulation markets and PJM recently conducted a stakeholder session to investigate participation of battery storage in the Base Residual Auction (BRA) capacity market. Despite this, many energy storage firms focused on behind the meter installations don't fully take into account the value of avoided retail capacity charges for the end use customer. It is much simpler to help an end use customer avoid capacity charges than it is to bid into the BRA.

As a quick refresher, PJM has a Generation Capacity cost allocation mechanism where retail customers are charged a Capacity Charge based on their usage during the peak load hours of PJM's top five highest load days, referred to as 5CP hours. This charge is called the GenCap charge and it can be broken out separately on an invoice by deregulated electricity suppliers or rolled into a fixed price. Regardless of who you purchase electricity from (e.g., utility vs. deregulated supplier) the GenCAP charges are there. On June 1, 2014, all PJM customers have their GenCAP tags reset based on their usage during the 5CP hours from the previous summer. The graphic below shows PJM's load pattern from the summer of 2013, with 5CP days shown in red. The table to the right shows the highest load hours on each of these days.

For an interval metered retail customer, their GenCAP tag will be based on their actual metered usage during the 5CP intervals. The table below illustrates how this tag is determined. There are a couple of additional scaling factors that may be applied, but this table captures the essence of the GenCAP tag calculation.

Once the GenCAP tag has been determined, it is multiplied by the PJM zonal capacity clearing price to determine what the customer must pay for capacity. The table to the left provides a simplified depiction of the costs associated with a GenCAP tag of 845 kW in the PSE&G - North PJM capacity zone. As you can see, the customer could realize a significant savings opportunity if they were to drop their load to minimal levels during PJM 5 CP hours. Predicting the PJM 5 CP hours is actually fairly straightforward as PJM's load is strongly weather driven. Really hot days = PJM peak loads. This author has built prediction tools and there are several services that provide daily forecasts for PJM during the summer season. Viridity, Gridreason, and EnerNOC provide these predictive services.

In PJM , the Transmission Capacity charge offers another ~ 20k of cost avoidance opportunity per MW, but its calculated a little differently from GenCAP.

If you'd like to know more about these topics, please call us, especially if you are trying to sell behind the meter battery storage as capacity charge avoidance is a significant value stream that is poorly understood and often overlook by storage system developers.