In this blog post we’ll break down the causes and ramifications of the reprice event in PJM for February 2022. The majority of the impact (both in the initial congestion and changes related to the repricing) was in the Northern Neck Peninsula in PJM.
The Northern Neck Peninsula in PJM can be prone to volatility and high prices due to its isolated location in the Dominion zone. There are only three lines that supply power to this region. One of the transmission lines (Lanexa-Dunnsville-Northern Neck) was placed on outage on January 5, 2022. The outage is expected to run well into 2023 while a second circuit is installed within this corridor.
As a result of the outage, the average DA Congestion Price in January 2022 was over $330/MWh within the Peninsula.
The line outage caused the Greyspoint to Harmony Village constraint (pictured above) to bind frequently - often oscillating between the regional marginal unit price and the Transmission Constraint Penalty Factor. The Transmission Constraint Penalty Factor is utilized when the available resources cannot solve for a transmission constraint. When it is applied, the price is set to $2,000/MWh.
As a result of the likely sustained nature of the constraint and the high cost to load in the Northern Neck area, PJM requested a revision to its tariff with FERC that would stop the application of the Transmission Constraint Penalty Factor. It would let the units (a set of small CTs) set the price and relax the constraint if needed. On February 18, 2022 the FERC accepted revisions to PJM’s tariff associated with the application of the transmission constraint penalty factor and also allowed the ISO to revise prices from February 1, 2022 as a result of the change.
This is a unique situation and an outcome rarely seen before in the energy markets. PJM noted that the intention of the price signal created by Transmission Constraint Penalty Factor was to incentivize more elastic demand and bring more generation to an area, but given the cause and length of this congestion - there were few remedies and the only result would be high prices in the region. New generation is planned in the area; however, PJM believed it is unlikely this generation would be online in time to alleviate the congestion. This constraint has bound before, but notably, when solar generation was higher and provided additional MW relief in the area. As we can see in the chart below there is an inverse relationship between the constraint, pricing at a highly impacted node and solar generation.