PJM Performance Based Regulation Implemented as of October 1, 2012

Early results suggest lucrative opportunities for batteries and other fast responding resources

On October 1, the business case for an electricity consumer to install a battery on its site became much more persuasive.  On that date, PJM Interconnection began making higher payments to a consumer that provides "regulation" service.

To operate the electric grid reliably, PJM must keep the frequency on the grid very close to 60 cycles per second.  PJM has long relied on traditional power plants that can help maintain that frequency, but do so inefficiently and inaccurately.  Batteries, and other resources that can respond almost instantaneously to PJM's direction, do a much better job.

Under the new PJM rules, all resources providing regulation service are paid at a price that reflects their actual performance.  Payments under the old rules were not linked to performance at all; instead, the payments had been based only on the resource's general capability.  Resources that perform quickly and accurately in response to PJM's direction contribute more to protecting the grid's reliability — and now they are getting paid for that greater contribution.

Early results from the new compensation rules are encouraging. Over the first two weeks of October, the average total price for regulation (reflecting both capability and performance) is about triple what it had been in the last week of September.  Traditional resources have performed at levels as low as 40%, while batteries and other fast-responding resources have performed at levels as high as 98%.  The combination of the higher price and the higher performance is making it much more rewarding for fast-responding resources to provide regulation service to PJM.  The new rules have been in place for a very short time, so Viridity will keep close watch on prices and performance over time and will provide updates.

PJM expects that all consumers, not just the ones who provide regulation service, will benefit.  Since the higher-performing resources contribute more to reliability, less total resources overall are needed to provide regulation.  PJM has therefore projected that the total cost to customers for regulation will be lower than it was under the old rules.

Want more information? Download our Regulation brochure here or contact solutions@viridityenergy.com.