PJM Reserve Markets: Operating Reserve Demand Curve Enhancements

Organized electricity markets require attention to the details of market design, ie, the tariff rules and software models used to determine the quantities clearing in the markets and the prices used for settlements. The requirement for open and non-discriminatory access to the transmission grid makes it essential to get the prices right to provide incentives for coordinated but largely voluntary actions by market participants that are economically efficient and reinforce reliable grid operations. The basic market design for transmission access and energy market clearing in place in PJM addresses this fundamental challenge of non-discriminatory open access. Refinements for pricing of operating reserves are an important opportunity to enhance the PJM market design to better value reserves and improve pricing under scarcity conditions.This paper addresses the underlying economic efficiency elements of PJM’s proposed Operating Reserve Demand Curve reforms that provide a basis for just and reasonable rates. As summarized here and discussed further by PJM1, the existing PJM operating reserve market design fails to support economic efficiency in a number of ways. Elements of the current operating reserve market construct in PJM were developed in stages in prior years and, as a result, are not explicitly founded in a principled theory connecting the composite operating reserve market design to sustainable, just and reasonable rates. In addition, changing circumstances, such as increasing variability in net load due to intermittent resources, have revealed problems where the prices for different types of reserves do not reflect their underlying …