Ex-FERC Commissioner shares insights on PJM's capacity auction process

In the ever-evolving era of artificial intelligence, data center companies are facing increased difficulties in securing speedy and reliable power supply in the PJM market, compared to two years ago. This issue was recently discussed by Alison Clements, a former FERC commissioner and current advisor to data center developers, energy companies, and utilities, during a Latitude Dispatch last week.

The PJM market, unique in its hybrid structure that involves restructured states and a wholesale market with a capacity construct, presents unique challenges. These challenges are further compounded by the market's recent tightening, as evidenced by the record-high outcome of the PJM capacity auction that cleared in early July, settling at a capped price of $329 per megawatt-day.

The high auction outcome is a reflection of surging demand and the limits of existing supply amid a data center boom. To address these challenges, developers are hiring C-suite-level energy roles and exploring various strategies. One such strategy is forward-leasing with utility partners to work on flexibility options, such as sharing excess availability.

Another strategy under discussion is the PJM's proposed non-capacity backed load initiative (NCBL). This controversial proposal aims to decrease the capacity obligations of new large loads. The NCBL places new large loads at a low priority relative to firm power availability in emergency situations. However, it is intended as a temporary measure until the system planning and interconnection processes catch up and there is enough space and supply on the grid to serve demand. The NCBL would allow for voluntary curtailment of new large loads during emergency conditions, with the option for mandatory backing down if necessary.

Data centers are also considering flexibility options such as curtailment, backup power options, and bridging options to maintain five nines reliability in the short term. The tightening energy supplies, rising costs, and community concerns about data center development in PJM exacerbate these challenges.

Despite these difficulties, there is an opportunity for innovation in the market as developers navigate the evolving power landscape in PJM. Regions such as Northern Virginia in the USA, Singapore, Dublin in Ireland, and Tokyo in Japan have experienced similar developments in power supply demands for data centers in recent years.

As the demand for data centers continues to grow, it is crucial for PJM to invest in new generation capacity to balance out prices and ensure the region's long-term reliability strategy remains secure. The NCBL, while a controversial proposal, could be a step towards addressing these challenges in the short term, while longer-term solutions are developed.