Check out what Justin Spencer has to say about the potential impacts on energy efficiency of PJM's proposal to eliminate energy efficiency capacity payments. We hope the impacts are small, but there's plenty of cause for concern.
I take exception with the subtitle in this Utility Dive article: "There is no evidence that capacity payments spur energy efficiency investments, according to the PJM Interconnection, which wants the plan to take effect before a December auction." A better subtitle might be, "After 15 years, PJM discovers attribution issues, doesn't know how to deal with them and decides to mark everything 0." There's plenty of evidence that PJM payments result in energy efficiency (EE) increases. However, there are also likely situations where the PJM payments have almost no impact on energy efficiency. I don't actually think that PJM's proposed policy is necessarily wrong. The current paradigm is that EE gets added back to the forecast. In situations like utility-run programs where ratepayers are paying for EE investments and receiving capacity payments as passthroughs, the net position is the same, whether EE is included in the market and forecast or excluded from the market and forecast. In situations where private companies are paying trivial amounts of money to retailers to capture sales of EE products in PJM capacity markets, the impacts are much more murky and elimination of this kind of energy efficiency should help ratepayers in those areas, because the ratepayers didn't receive the PJM capacity payments previously. However, there are some important side issues that need to be dealt with. It's important that energy efficiency get included in the forecast in real time. If energy efficiency is only incorporated in the forecast as a lagging variable, then ratepayers may be procuring more capacity than they need, by one year's worth of energy efficiency. Eliminating the PJM capacity payments received by utility EE programs will likely reduce investment in EE in the near term, because utility programs rely on PJM capacity payments in part for their funding. Unless utilities decide to increase DSM charges for ratepayers, and commissions approve these increases, rebate amounts and EE capacity will both decline, which will provide ample proof of the impact of removing capacity payments. Unfortunately, when the PJM forward capacity market is failing to deliver low cost capacity, we need all of the low cost capacity from EE that we can get. It will take enlightened policymaking at the state utility commission and utility level to propose actions to increase investments in DR and EE at the exact moment that PJM is taking funding away. PJM should be leading the way to convince commissions that their constituents are being made whole for reductions in capacity on the demand side and asking them to incent distributed resources that can be installed in less than a year. Otherwise, the market price may max out for multiple years and commissions may be under political pressure to leave the PJM market and go back to utility-owned generation. https://lnkd.in/gHiepTxH