PJM Files Rule Change Requiring Renewables and Storage to Participate in Capacity Market

On December 20th 2024, PJM filed changes at FERC to its Reliability Pricing Model (“RPM”) capacity market rules that, if approved, will create new requirements for renewable energy and storage asset owners. Under the current market rules, renewable and storage projects have had a categorical exemption from mandatory RPM participation. PJM’s proposed rule change would require all existing solar, wind, and storage resources with Capacity Interconnection Rights (“CIRs”) to participate in RPM auctions. If FERC approves these rule changes, renewable and storage projects with CIRs would be required to participate in the upcoming 2026/27 BRA this July. 

As a way to mitigate the potential downside impact of RPM participation, PJM included in this filing a companion proposal to set the floor of the Market Seller Offer Cap (“MSOC”) at a resource’s Capacity Performance Quantifiable Risk (“CPQR”). This allows resources to construct RPM offers in a way that accounts for the risks inherent in taking on a capacity commitment. 

For renewable and storage asset owners, the upshot of these proposed rules changes is that capacity market participation may soon be required, creating new opportunities and risks for your project. It is critical to act now to ensure you are prepared to manage these new requirements.

This most recent proposal comes on the heels of several others in recent weeks, including changes to how PJM treats Reliability Must Run (“RMR”) resources in RPM auctions, a new one-time Reliability Resource Initiative (“RRI”) option for shovel-ready projects to interconnect on an accelerated timeline, and a plan to expedite studies for Surplus Interconnection Service (“SIS”), which would mostly help existing intermittent resource owners wanting to co-locate new energy storage. These proposed reforms all stem from forecasted tightening supply dynamics in PJM in the coming years, highlighted most recently by the sky-high clearing prices in the 2025/26 BRA this past summer, which SYSO discussed in our PJM webinar last September. 

As a quick refresher, PJM implemented a key change to capacity accreditation starting with the 2025/26 BRA that essentially only counts the most reliable capacity, which had the effect of shrinking the supply stack used in RPM auctions. On top of that, PJM continues to forecast significant peak demand growth, predominantly due to projected data center and manufacturing buildout as well as electrification, plus supply reductions due primarily to environmental policies and economics. Combined, these rule changes and macrotrends resulted in prices rising to nearly $270/MW-day across all of PJM (up from $28/MW-day in the 2024/25 BRA) and over $400 in the DOM and BGE zones. Normally, such robust pricing would act as a clear investment signal for new generation, however with PJM’s backlogged interconnection queue and capacity accreditation rule changes, there simply isn’t enough time to bring sufficient new resources online to bridge the widening gap. As a result, these reforms proposed by PJM over the past several weeks are meant to act as an “all of the above” attempt to bring as much capacity as possible into RPM auctions to both improve reliability and provide an actionable forward price signal.

Existing thermal resources have always had an RPM must-offer requirement since the inception of PJM’s capacity market, but intermittent and storage resources have had a categorical exemption that has resulted in roughly 60% voluntary participation up through the 2025/26 BRA. This exemption was premised on two key facts the last time PJM significantly overhauled its capacity market in 2014: (1) intermittent and storage resources historically have made up a very small portion of PJM’s generation fleet, leading to minimal concerns over the potential exercise of market power via physical withholding, and (2) intermittent resources have no control over fuel availability and storage resources have limited durations, and so it was deemed an unreasonable risk to hold them accountable to the same level of potential non-performance penalties as thermal resources. 

• However, currently over 97% of the nearly 157 GW of projects in PJM’s interconnection queue are intermittent or storage resources. Many of these projects are being developed by companies who also own traditional thermal resources, so PJM now has a well-founded concern that those companies could exercise market power by physically withholding the capacity of their intermittent or storage projects to keep capacity pricing high and improve the financial outlook of their thermal resources. 
• Furthermore, PJM’s capacity market reforms accepted by FERC in mid-2023 significantly lowered the risk profile of taking on a capacity commitment by modifying the triggers of a Performance Assessment Interval (“PAI”) to focus only on the most extreme grid conditions—to the extent that only 6 hours of PAIs would have occurred during Winter Storm Elliott rather than the 23 hours that the market actually experienced—as well as lowering the stop-loss to be 150% of a resource’s annual capacity revenues instead of 150% of the higher, administratively-set Net Cost of New Entry (“Net CONE”). 
• Lastly, the companion change to MSOC included in this RPM must-offer filing would mean that intermittent and storage resource owners can attempt to quantify their view of the financial risk to taking on a capacity commitment. Those changes from 2023, combined with the fact that lower capacity accreditations for intermittent and storage resources inherently reduce risk, plus the proposed change to MSOC and CPQR, mean PJM no longer views the unreasonable risk argument as valid either. 

If FERC accepts PJM’s rationale for removing the RPM must-offer exemption for intermittent and storage resources by the mandated 60-day deadline of February 18th, owners of any existing resources will only have a matter of weeks before the March 11th deadline to request a unit-specific MSOC price, and only a few months until the 2026/27 BRA opens on July 9th, participation in which would be mandatory. For planned, not-yet-operational resources, RPM participation would remain voluntary, but we recommend you develop a plan sooner rather than later, as participation would similarly become mandatory once your project achieves COD. 

The SYSO team has decades of experience working in capacity markets in the US that we bring to bear for our clients and partners. We encourage you to get in touch today so that we can help you determine when and how your planned projects may qualify for PJM capacity market revenues, as well as when and how your projects may now be required to participate in PJM’s capacity market.