Brattle Experts Evaluate Parameters of PJM’s Reliability Pricing Model and Variable Resource Requirement in New Reports
Prepared for PJM Interconnection
In two recent reports prepared for PJM Interconnection (PJM), Brattle experts evaluate the parameters and shape of the Variable Resource Requirement (VRR) curve that is used to procure capacity under the regional transmission organization’s Reliability Pricing Model (RPM). Review of the VRR curve is required periodically under PJM’s Open Access Transmission Tariff.
The two reports focus on priorities identified by stakeholders, PJM staff, and Brattle’s own assessment of challenges likely to affect the performance of the VRR curve and RPM in upcoming delivery years. The authors assess the causes of price increases in the most recent PJM capacity auction, estimate the likely costs of new supply in the short- and long-term, and outline the reliability and affordability challenges presented by the extraordinarily tight supply-demand conditions that may be faced over the next few years; they also propose Reference Prices and price caps based on estimated long-run marginal cost of capacity. The authors acknowledge risks that RPM curves with these parameters might not procure enough capacity to meet reliability targets in the next few years but warn that allowing moderately higher prices than proposed might not accomplish much more under these conditions, and allowing much higher prices would enable excessive volatility and severely challenge the value proposition to customers.
The authors also recommend restoring the 3-year forward period and updating the shape of the VRR curves according to marginal reliability impact (MRI) that ties pricing outcomes to delivered reliability value. In addition, they highlight other opportunities to improve RPM’s capability to send economically efficient pricing signals and maintain reliability throughout the upcoming fleet transition.
“Sixth Review of PJM’s Variable Resource Requirement Curve” was prepared by Principals Dr. Kathleen Spees and Dr. Samuel Newell, Energy Associate Dr. Andrew W. Thompson, Energy Specialists Ethan Snyder and Xander Bartone.
“Brattle 2025 CONE [Cost of New Entry] Report for PJM” was coauthored by Dr. Newell and Dr. Thompson, Principal Dr. Bin Zhou, Energy Analyst Nathan Felmus, and Research Analyst Harsha Haribhaskar along with consultants from Sargent & Lundy. Both reports are available below.
