On April 2, 2012, PJM made a filing with FERC proposing to change its Operating Agreement in an effort to align compensation provided to wind generators for “lost opportunity costs” with the compensation currently offered to conventional generating resources.
Under the PJM Operating Agreement as it currently stands, when PJM limits generation output in real time, conventional generators, including combustion turbine or combined cycle units and hydroelectric resources, are automatically paid for lost opportunity costs based on the difference between their output during the reduction and their economic output in real-time had there not be a reduction requested by PJM. There is currently no such provision for wind generators. Instead, in order to receive compensation for opportunity costs when asked by PJM to curtail, wind generators have to utilize a separate provision in the PJM Operating Agreement that applies to market sellers that believe they were not accurately compensated for lost opportunity costs associated with following a PJM dispatch instruction. That provision ties lost opportunity costs to resources that have cleared the PJM Day-Ahead Energy Market and must be specifically requested by the seller. PJM states that this provision and its reliance on participation in the PJM Day-Ahead Energy Market is an imperfect solution for wind generators, which are intermittent resources that by their very nature are difficult to accurately commit day-ahead. PJM further argues that that the lack of a commensurate lost opportunity cost compensation provision for wind generators fails to create the appropriate incentive for wind resources to follow PJM dispatch instructions.
In its filing, PJM notes that its Independent Market Monitor opposes this proposal on the grounds that wind resources should not receive compensation for curtailment at levels beyond their interconnection rights. The Market Monitor argued in the stakeholder process that because wind generators have limited interconnection rights due to their comparatively low capacity factors, they have not paid to upgrade the transmission system to permit their full output at all times and, therefore, should be ineligible for full opportunity cost compensation during curtailments.
For a copy of the filing, click here.