What is the PJM electric market?
PJM is an independent regional transmission organization (RTO) that covers primarily the mid-Atlantic but also the Chicago and Ohio regions. As the largest wholesale power market in the world, it facilitates the purchasing and selling of electricity for all commercial, industrial, and residential consumers of energy for more than 65 million customers. And it’s also a power market that has the majority of participating states operating in a deregulated manner – meaning, the supply and delivery of electricity are separated and generators have to operate in the PJM market as competitive generation assets. (Click here to learn more about Stem’s energy storage solutions in PJM.)
What is the significance of PJM being fully deregulated?
The significance of deregulation – often referred to as direct access on the retail side – is that it provides end users control and flexibility over their power supply structure that a regulated market does not offer.
Let’s say a customer is unhappy with the price or the structure of the power supply they are receiving from a local utility. In a regulated market, the customer is unable to do anything but pay the bill. However, within PJM’s deregulated market, if the customer is unhappy with the structure or rate from their retail power supplier, they can shop the market of available retail energy providers and potentially find a lower rate or a preferred structure. Customers within the PJM can contact a preferred retail energy provider (REP) and say, “I’d like a quote for power supply, and I’d like to see a few different structuring options.”
Operating in a deregulated market provides customers the flexibility as to how their rates are structured, and because of that, they can structure their rates in a way so that battery energy storage can add value.
What are the different value streams for behind-the-meter storage systems in PJM?
PJM assesses charges based on a customer’s usage by measuring each customer’s load over a current year, and that dictates the megawatt quantity on which customers are billed the following year.
Let’s say a customer consumes one megawatt of electricity and the associated rate for capacity that year is $30,000 per megawatt. For the next year, that customer will pay $30,000 no matter how much energy they end up using that year. To help offset those types of high charges, an energy storage system can serve as a primary value stream by dispatching stored energy during peak periods and that can help customers save a substantial amount of money on next year’s invoice.
A second value stream is to participate in PJM’s ancillary services market where you can place bids on frequency regulation and sync reserves, which can yield anywhere from $75,000 to $100,000 per megawatt per year in the near term of incremental value. Combining energy storage and the ability to bid on ancillary services creates a rather lucrative value stack for end users in PJM.
There are some states within PJM that are looking to launch storage incentive programs – particularly in Illinois and New Jersey. These incentive programs will create additional value. To stay current on Stem’s BTM offerings, sign up for Stem’s monthly newsletter.
What are the ideal qualifications for successful storage systems in PJM?
Generally speaking, sites with at least one megawatt load between 4 and 8pm, particularly during the summer, translate into large industrial loads. These are customers with facilities such as data centers, hospitals, colleges, and universities that would make a good fit for adding energy storage. If a customer has one megawatt of load, then Stem suggests to dispatch the energy storage system for two hours to meet the coincident peak. In that case, you’d need a two megawatt hour energy storage system to reach the threshold size where the economics make the most sense. Request a quote of Stem’s most affordable, two megawatt storage system.
How are rates for capacity and transmission trending in PJM?
Capacity rates in PJM have historically fluctuated from high to low points every few years. We’re currently at a low point in capacity , but history suggests they will return to their longer term average in the near future.
Transmission rates almost universally across PJM have been rising rapidly for the last 8 to 10 years. There are certain zones where we see annualized growth rates in excess of 15%, going back from 2014 to today. And what’s unique about transmission is that there’s really no mechanism for retail end users to protect themselves from rising rates in the long term, especially if they enter into a fixed, multi-year contract. Once that contract expires, end users will pay the market rate for transmission. Having a dispatchable asset behind-the-meter is extremely valuable from a cost management strategy standpoint, and reducing the capacity tag is the only surefire way to avoid rising costs. To put some numbers behind those rising costs, New Jersey’s largest provider of electric and natural gas service serving 2.3 million electric customers and 1.9 million gas customers, Public Service Electric and Gas Co. (PSE&G), has risen from $70,000 a megawatt to in excess of $160,000 per megawatt. These are substantial numbers, especially for peaky loads that could have a very high percentage of their costs made up over a very few amount of hours.
Why should partners and customers without energy storage in PJM work with Stem?
Stem holds an advantage in entering this territory because our experts understand the complexity of the value stack and coincident peak mitigation, which requires the type of forecasting that only a leader like Stem can deliver.
Stem’s experts will guide you through wholesale market participation, ancillary services, and frequency regulation programs and will determine and optimize your storage systems for the most efficient operation. We can do so within the context of local tariffs and ensure that you do not increase demand charges.
PJM is a complex market to operate in, but when you partner with Stem and integrate our AI-driven platform Athena®, you will have a full suite of storage services that are needed to be successful in the market. To learn more about Athena, download our new Athena eBook here.