IEEE Power & Energy Magazine - July/August 2020 - 26

Market prices should incentivize and provide appropriate
compensation to resources for the value of the services
they provide to ensure grid reliability and resilience.
make the facilities less critical and remove them from the list
of critical infrastructure.
We are currently developing a resilience metric to complement and enhance the planning process, which has traditionally been very deterministic and focused on reliability
and efficiency. The intent is to incorporate cascading trees
into the planning processes as a consideration to make the
bulk power system more robust and resilient to the potential
naturally occurring and man-made extreme events.

Market Aspect

Penalty Factors (US$/MWh)

Competitive markets help improve the resilience of the wholesale electricity supply through incentives created by price
signals that value the services needed to reliably plan and
operate the grid. In addition, open and transparent competitive markets provide the ability for new technologies to enter
and compete. The primary purpose for instituting wholesale
electricity markets to begin with was to reinforce grid reliability by providing physical asset owners with the financial
incentive to act in a manner that supports reliable network
operation. The same approach applies to reinforcing grid
resilience through markets.
Market mechanisms (i.e., market-based solutions) can
be used, where appropriate, to value resilience, relying on
proper price signals to incentivize resources and new solutions to help improve system resilience while harnessing the
power of competition to minimize cost. The focus for the
past few years has been on improving energy price formation to properly value resources based on their resilience
attributes (such as fuel security) and fully integrating DERs,
microgrids, DR, and storage in the markets.

2,500
Current ORDC
Proposed ORDC

2,000
1,500

LOLP × US$2,000

1,000
850
500
300
0

LOLP = 0
Step 1 Step 2
Reserves (MW)

figure 5. The proposed ORDC changes. LOLP: loss-ofload probability.
26

ieee power & energy magazine

Capacity Market Enhancements
The capacity market, known as the reliability pricing model
(RPM), was created to ensure long-term resource adequacy at
the lowest reasonable cost. By reflecting the needed quantity
of reliability and resilience attributes in the capacity market,
market forces can address system resilience needs, such as fuel
security. During the 2014 polar vortex, PJM experienced significant generation outages of 22%. After that event, capacity
performance was introduced into the capacity market to offer
stronger financial incentives to generators to perform when
called to operate. Overperformers are rewarded, and underperformers face penalties. The 2016-2017 capacity auction
was the first to have capacity performance requirements for
resources. After the right investment signals from the capacity
market (which replaced nearly 27,000 MW of older generators
with more than 32,000 MW of new, more efficient, and loweremission resources), during the 30-31 January 2019 severe
cold spell, the forced-outage rate was significantly reduced to
8.6% and 10.6%, respectively.

Price Formation
Market prices should incentivize and provide appropriate compensation to resources for the value of the services they provide
to ensure grid reliability and resilience. Uplift payments, i.e.,
make-whole payments, are unavoidable under the current market
construct. However, significantly high uplift indicates that prices
are not reflective of what is needed to maintain grid reliability,
and it reveals market inefficiency. The uplift spikes during times
of system stress, such as heat waves and cold snaps, press the
need for energy price formation. Reserve market enhancements
have been proposed and recently filed with the Federal Energy
Regulatory Commission (FERC) to
✔ improve reserve and energy pricing to reflect system
conditions and properly value scarcity
✔ align reserve products in day-ahead and real-time energy markets
✔ use a downward-sloping operating reserve demand
curve (ORDC) and increased penalty factors to ensure
that all supply is used prior to a reserve shortage
✔ enhance locational reserve modeling to ensure reserve
deliverability.
Figure 5 conceptually shows the current and proposed
ORDCs, with the following enhancements:
✔ Increase the maximum penalty factor from US$850/MWh
to US$2,000/MWh to improve scarcity pricing and
replace operator intervention with market responses
to higher prices at step 1, representing the minimum
july/august 2020



IEEE Power & Energy Magazine - July/August 2020

Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - July/August 2020

Contents
IEEE Power & Energy Magazine - July/August 2020 - Cover1
IEEE Power & Energy Magazine - July/August 2020 - Cover2
IEEE Power & Energy Magazine - July/August 2020 - Contents
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