In 2024, the top issues facing PJM Interconnection include capacity market reform, generator retirements, and the construction of a new transmission planning paradigm. This assessment comes from several key stakeholders and industry consultants.

The complexity of these challenges lies in the fact that the issues are deeply interconnected and difficult to solve in isolation.

"All of these pieces are connected," said Steve Lieberman, vice president of transmission and regulatory affairs at American Municipal Power. "We may discuss these issues separately in different forums, but the rules of the capacity mechanism, the rules of the energy market, the way the interconnection queue is handled, and the path of transmission planning are actually one integrated whole."

A core issue running through PJM's work this year is ensuring that a sufficient number of new generation resources—expected to be predominantly inverter-based resources such as solar—can interconnect in a timely manner to replace retiring units and maintain grid reliability.

Generator Retirements

Bill Dugan, director of wholesale optimization at energy management company Customized Energy Solutions, noted that Talen Energy's plan to retire its 1,282-MW Brandon Shores plant outside Baltimore was the largest potential shock to overall PJM system stability over the past year.

In response to the retirement plan announced by Talen Energy last year, PJM decided to advance nearly $800 million in transmission projects ahead of schedule to ensure reliability. The grid operator also plans to sign a "reliability must run" (RMR) agreement with Talen to keep the plant operating while transmission facilities are being built.

Meanwhile, PJM, which operates the grid across 13 states and the District of Columbia in the mid-Atlantic and Midwest regions of the United States, is coping with load growth in areas such as Northern Virginia. This growth prompted the PJM Board to approve a $5 billion transmission expansion plan last December.

"PJM has to face the task of approving all these projects while also explaining whether these solutions are truly appropriate," Dugan said. "They face a classic dilemma: 'The only tool we have to solve this problem is building transmission lines,' so even if it's not the most efficient solution, that's what they have to do."

RMR Agreements

One issue related to the retirement of Brandon Shores and Talen's H.A. Wagner generating station is RMR agreements. The grid operator uses such agreements to keep units running when they are essential to grid reliability.

According to Glen Thomas, president of the PJM Power Providers Group (P3), which represents generating companies, PJM is engaged in "deep discussions" regarding RMR units.

The discussions involve "clarifying the rules around RMR agreements to ensure that while maintaining reliability, the right price signals are sent to attract new generation resources into the market," he said.

Lieberman expects PJM to use RMR agreements more frequently in the future. "A lot of capital is not being reflected through price signals," he noted. "That's not ideal because it's not conducive to market competition."

Last year, PJM established the "high priority" Deactivation Enhancements Senior Task Force to study potential changes to the grid operator's RMR practices, as well as the possibility of extending the notification timeline for generator retirements. Currently, generators planning to shut down must notify PJM at least three months in advance so the grid operator can assess whether the retirement would cause a violation of reliability standards.

Capacity Market Reform

Tom Rutigliano, senior advocate at the Natural Resources Defense Council (NRDC), believes that when a plant like Brandon Shores voluntarily requests shutdown and immediately causes transmission problems, it demonstrates that PJM's capacity market is not functioning effectively.

Last year, through an expedited stakeholder process, PJM developed two capacity market reform proposals. The Federal Energy Regulatory Commission (FERC) approved one proposal aimed at more accurately measuring resource reliability attributes but rejected the second proposal due to concerns over issues such as the proposed offer cap.

PJM plans to hold its long-delayed forward capacity auction in mid-June, followed by three more auctions every six months, before returning to an annual auction cadence. Dugan expects the approved reforms to affect existing and planned generation resources and put upward pressure on capacity prices, thereby generating additional revenue for plant owners.

Looking ahead to this year, PJM will focus on "capacity market reform 2.0," studying issues left over from last year's reform proposals. This assessment comes from Kent Chandler, chairman of the Organization of PJM States, Inc. (OPSI) and chairman of the Kentucky Public Service Commission.

"There is a lot of generation being built in the PJM footprint, but I think much of it has little or nothing to do with PJM markets," Chandler said.

Chandler noted that a significant portion of generation development is driven by state-level policies. "The economic calculation may not be focused on the energy market, ancillary services, or capacity market, but rather on who can sign a power purchase agreement with me."

"The norm for capacity markets is that they are never perfect," Lieberman said. "We are at a point where we know the market has problems, yet we are trying to figure out how to fit this square peg into a round hole—and that round hole is the energy transition."

Reserve Capacity

Another key initiative for PJM this year is ensuring it has sufficient reserve capacity to respond to unexpected changes in real-time supply and demand.

P3's Thomas pointed out that recent winter storms and other events indicate PJM has not procured enough reserve capacity, or the right type, and that the procurement process has relied on out-of-market payments.

The Reserve Certainty Senior Task Force, launched by PJM in October of last year, is studying how to ensure reserve products perform to standard and are adequately compensated. Dugan believes this issue is relatively focused and that the task force should be able to provide a "quick solution." He expects any solution will likely push reserve prices higher.

Interconnection Queue Reform

On the other side of the generation retirement issue, PJM has launched a new generation interconnection process after a multi-year pause to accelerate the connection of new power sources to the grid.

According to PJM spokesperson Jeff Shields, PJM expects to process approximately 72,000 MW of interconnection requests by mid-2025 and 230,000 MW over the next three years. More than 90% of these projects are renewable or energy storage projects. Shields said PJM may work with stakeholders to develop further reforms.

"Later this year, we will see whether the new interconnection system is indeed better," Dugan said. "Can we get projects that are ready to break ground moving faster than before?"

Thomas noted that over the past few years, very little generation has been added to the PJM system, and there are almost no thermal projects in the interconnection queue. As PJM's capacity auctions resume and pricing issues are resolved, the composition of the queue could change next year. "That would help address the supply-side problem," he said.

Transmission Planning

In one pending change, PJM plans to transition this year to a scenario-based long-term transmission planning process that will consider multiple benefits over a 15-year time horizon.

"This is the year of transmission planning," Rutigliano said. He noted that PJM currently has almost no forward-looking transmission planning.

However, organizations such as NRDC believe PJM's transmission planning proposal is flawed because it does not directly incorporate state clean energy policies. Nevertheless, "PJM will launch its most comprehensive interconnection planning ever this year," Rutigliano said. "Even its limited proposal is a major step ahead of current practices."

More changes may also be on the agenda for PJM discussions.

"Planning must change," Chandler said. "We cannot continue to be reactive."

In November of last year, OPSI urged PJM to shift from "reactive" planning to a proactive, holistic, and economically affordable framework for maintaining grid reliability. "That means meeting customer needs in the most reliable, lowest-cost way, exploring paths we haven't considered before," Chandler said.

"PJM must make itself attractive for investment again," Chandler said. "Many people are investing in transmission within the PJM footprint, but not necessarily following PJM's processes, such as supplemental projects."

Chandler suggested one possibility is to give generation resources and transmission resources equal standing in solving reliability issues caused by retiring units. He noted that under the current framework, PJM's only option is to build transmission lines.

Chandler believes reliability issues could potentially be solved by advancing generation projects already in PJM's interconnection queue. "What if we could, through market mechanisms, get generators to provide reliability at a fraction of the cost of transmission solutions?" he asked rhetorically.

Rutigliano suggested that PJM and its stakeholders should anticipate possible generation retirements several years in advance in order to coordinate the development of new generation, storage, and transmission facilities.

"There is no avoiding the fact that a large number of fossil fuel units will retire by the end of this decade," he said. He also noted that because states have jurisdiction over generation, any new process would require state involvement.