A federal agency Thursday ordered the operator of the nation’s largest marketplace for electric power to allow energy efficiency projects to compete directly with electric power plants. The new head-to-head competition was ordered to begin with an auction this May to purchase the resources needed to meet peak power demands during the summer of 2012.
The auction will be run by PJM Interconnection, Inc., which coordinates electric grid operations serving 51 million people in 13 states and the District of Columbia, and operates the nation’s largest competitive wholesale electricity market.
“This is a major breakthrough for consumers,” said Steven Nadel, Executive Director of the American Council for an Energy-Efficient Economy (ACEEE). “New investments in energy efficiency should help lower the cost of meeting the peak demand for power on hot summer days. The PJM auction will provide a new source of funding for efficiency projects, allowing the savings to consumers to grow.”
The Federal Energy Regulatory Commission (FERC), which oversees wholesale electricity markets throughout the US, had ordered PJM in 2007 to consider ways in which energy efficiency projects could participate in future auctions. Following many months of discussions with stakeholders, and over the objections of power generators and traders, PJM submitted in December its eligibility rules for energy efficiency that were largely approved Thursday.
Terry Black, Director of the Project for Sustainable FERC Energy Policy, commended the Commission for its leadership in assuring the integration of clean, low cost energy efficiency resources into PJM’s capacity market, and he praised PJM for developing a proposal that could be approved by the Commission.
Black, who represented 15 public interest organizations in the proceeding, said "We believe the Commission’s action in this case provides an important signal to all electric industry stakeholders that federal energy regulators have determined that energy efficiency resources, along with renewables and other demand-side energy resources, must be fully integrated into our electric power system and must be comparably compensated for the services they provide."
The PJM market constitutes approximately 20% of the electric power market in the United States. Last May, PJM sought bids for power to be available in the summer of 2011 totaling 133,000 megawatts (MW), a staggering amount of electric generating capacity. If even a small percentage of such future demand can be avoided with new energy efficiency projects, consumers will benefit from reduced costs and energy efficiency programs will grow significantly, according to ACEEE.
Under PJM’s rules, the minimum amount of energy savings that will be eligible to bid in the auction will be 100 kilowatts, far larger than the peak demand reduction that might result from efficiency improvements in an individual appliance or home. However, electric utilities and independent contractors are expected to bundle up the peak demand savings from groups of residential and small commercial customers to provide an increment of demand reduction that can qualify for auction.
Additionally, bidders of energy efficiency resources will be required to submit plans to measure and verify their projected savings, subject to PJM approval. Under PJM’s plan, energy efficiency resources are eligible to bid, and be paid, for four consecutive years, and FERC has now ordered PJM to consider even longer periods of eligibility.
“This ruling will change the way we think about energy efficiency,” predicted Ed Osann, Senior Associate for ACEEE. “Until now, most energy efficiency programs have been evaluated on the basis of energy savings, while ignoring their valuable contribution toward reducing the peak demand on the electric system. The opportunity to monetize the value of these demand reductions through participation in future PJM capacity auctions will give a major boost to energy efficiency investment throughout the entire region.”
The PJM plan greatly expands the geographic scope of a program initiated in New England in 2006.
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