Massive Shift toward Solar Power Begins in Largest U.S. Electricity Market

PJM Interconnection, the largest wholesale electricity market in the U.S., is on the verge of going solar in a big way. The market, which encompasses 13 states from the mid-Atlantic shore, through fossil fuel-rich Pennsylvania and Ohio and as far West as Illinois, has a massive backlog of clean energy projects of all types that are waiting to be built, with solar foremost among them. In fact, the amount of clean energy in line to join PJM totals more than all of the generation capacity that exists in the market today.

Mike Borgatti, Vice President of RTO Services and Regulatory Affairs at Gabel Associates, discusses the unprecedented number of new clean energy projects that are lined up in PJM’s interconnection queue, and the policy and economic factors that are driving the shift to solar, wind and storage. He also takes a look at the decline in the number of natural gas projects waiting to enter the market, and what all of these developments may mean for the future power mix.

Full Transcript

Andy Stone: Welcome to the Energy Policy Now podcast from the Kleinman Center for Energy Policy at the University of Pennsylvania. I’m Andy Stone. When people think of hot spots for solar power in the United States, sun-washed states like California likely come to mind. But PJM Interconnection, which is the largest U.S. electricity market and encompasses some of the nation’s most productive natural gas and coal regions, could be on the verge of going solar in a big way. The market, which extends from the mid-Atlantic shore, through fossil fuel-rich states like Pennsylvania and Ohio, and as far west as Illinois, has a massive backlog of clean energy projects that are waiting to be built. In fact, the amount of clean energy in line to join PJM is greater than all of the generation that is currently in place in the market.

In today’s podcast, we’ll look at the unprecedented number of new clean energy projects that are lined up in PJM’s interconnection queue, and at the policy and economic factors that are driving the shift to renewables. We’ll also look at a recent decline in natural gas projects waiting to enter PJM. And we’ll discuss what all these developments may mean for the future power makeup of the market.

My guest is Mike Borgatti, Vice President of RTO Services and Regulatory Affairs at Gabel Associates. Mike has a long and deep involvement with the PJM electricity market. Mike, welcome back to the podcast.

Mike Borgatti: Hey, thanks Andy. I appreciate you having me back.

Stone: It’s great to have you back. And just a quick note before we begin, for transparency — I do work with Gabel Associates. So Mike, we’re going to be spending the better part of the next hour talking about wholesale electricity markets, which is one of those topics that quite understandably, most people don’t encounter in their everyday lives. And these markets nonetheless fundamentally influence the cost, the reliability, and environmental impact of the electricity that most Americans consume.

So to get us started, I wonder if you can give us a brief overview of the PJM market and along the way, tell us what an interconnection queue is, which is really going to be the focus of what we’ll be talking about today.

Borgatti: Yes, absolutely. So I think you said it nicely in the intro. PJM is what’s called a “regional transmission organization,” and that’s an independent administrative third-party company that is regulated by the Federal Energy Regulatory Commission. It operates and manages the transmission system in a 13-state area that spans from the New Jersey, New York, Pennsylvania and New York border, west to Michigan, and south down rough to the North Carolina and Virginia border to the south here. So it’s a huge territory. Something like 60 million people live within that PJM region. And in addition to managing that transmission system, they run a wholesale power market that functions like a commodity market, where buyers and sellers can come together and sell energy, ancillary services like reserve products, and capacity to meet demand within that region.

One of the interesting things here is that since the mid-1990s, FERC has mandated something called “open access” to the transmission system, meaning that all of the transmission-owning utilities, not just in PJM, but sort of around the country, have to grant open access, meaning they have to let independent power producers or third-party entities wishing to sell power at wholesale to connect to their transmission systems.

And the way that that works is that those generators have to agree to pay whatever the costs are to upgrade the systems so that they can reliably accommodate the power that those generators would provide. And so when we talk about “interconnection queues,” really all we’re doing is facilitating that process. PJM is running a series of studies to figure out what the cost to plug generators into that system is, and then they’re allocating those costs among the entities that are trying to plug in there. And so that’s the way that we have suppliers enter that market. That’s the way we bring energy from different resource types to market — it’s through that interconnection process.

Stone: So the interconnection queue is sort of the waiting line to get into the market, essentially?

Borgatti: Yes, that’s the right way to think about it, exactly. You can’t obviously begin transmitting power to PJM until you can reliably plug your generator in. You can’t begin selling that energy until you plug it in. And so yeah, that’s the waiting line or the gate to entry into the PJM markets here.

Stone: So the headline here, then, is that there are dramatically more clean energy resources lined up and waiting to get into PJM than ever before. Can you give us some numbers to put that into perspective? Just how much clean energy is waiting to enter the market?

Borgatti: It’s astounding. So to give some sense, the peak load, the highest load that PJM would ever use — typically it occurs in their summer on a very hot day, when air conditioning and other things are whirring away here — is about 150,000 megawatts of energy on that peak demand day. Right now, there are 240,000 megawatts of clear energy and other generation types sitting in the queue. So you have effectively one-and-a-half more PJMs that are in the queue waiting. There are over 100,000 megawatts of solar out there, and over 16,000 megawatts of offshore wind. So you’re literally looking at enough resources in the clean energy space — I’m also including hybrids and batteries in that conversation — to effectively replace the entire need of the resource mix in PJM within a period of about seven years.

Now certainly not all of those projects will get done, but there is at least enough out there in the queue today that you could exceed the needs for the systems entirely with clean energy that’s planning to plug into the system.

Stone: Now the last time that you were on this podcast was about a year ago, and I don’t think we’d be having quite the same conversation then that we’re having today. I think the renewables were starting to pick up, but it hadn’t gotten to the degree that we have today. When did this transition, where we’re starting to see so much more renewables in the interconnection queue — when did that begin?

Borgatti: You’re looking at a steady increase here, I would say over the last maybe four or five years. Keep in mind these are big infrastructure projects. They take a long time to permit. They take a long time to build. They’re obviously very expensive. And so there is a pretty long development runway for these projects. But over the past couple of years, PJM runs its interconnection queue through two cycles a year. And in each of those biannual cycles, they set new records for the number of projects that were submitting applications to interconnect to their system.

So you’re seeing that steady increase in the number of projects, until you have around 2,000 individual interconnection requests with PJM, and most of that occurred roughly in the last four to five years.

Stone: Now is this based on economics that we’re seeing this? Is this based on regulation? What’s the driver behind it?

Borgatti: Yes, those are two big factors. Certainly state RPS programs, federal incentives like investment tax credits and production tax credits are important factors in the thesis here. So certainly we can’t discount those. And those are kind of the obvious ones that people think about. Those types of policies certainly do tend to affect different entities within the clean energy space. They tend to affect some more than others.

Offshore wind is a really good example of that. That industry right now is essentially reliant on state-mandated procurements for offshore wind in places like New Jersey, through the New England States, and places like Virginia. But that’s really not the whole story here. We’re also seeing a substantial increase in corporate off-takers entering into PPAs with clean power projects to solve their internal environmental or clean energy goals.

Let me give you some numbers around that. As of Q3 this year, the American Clean Power Association reports that corporate customers signed about 37,000 megawatts of renewable PPAs on their own. So what you’re seeing here is a combination of factors where state policies are important, federal incentives are important, but you’re also seeing private sector demand, frankly throughout the Fortune 500, driving quite a bit of the investment in this case.

The apex point here for us is probably the decline in cost curves, to tell you the truth. There is an investment bank called Lazard that has been producing what’s called a “levelized cost of energy analysis.” And it basically calculates how expensive it is to produce energy from a different source. Over the last ten years, the price of utility-scale solar has declined from about $150 a megawatt hour to about $30 a megawatt hour — in just a ten-year period. And during that same period of time, you’ve seen wind LCOEAs dropping from about $100 a megawatt hour to 26. And so in just ten years, these resources have gone from what I would articulate as very expensive, to some of the most cost-competitive technologies out there. So factor in the policy piece, that economic piece, and then the corporate interest in meeting sustainability goals, and you have a perfect storm, as it were, of circumstances that are driving this current investment cycle.

Stone: And I think the trajectory there, also on the cost side, is initially the renewables became cost competitive with coal, which is one of the highest-priced resources in the market, and now increasingly with natural gas, it’s competitive, too. Is that right?

Borgatti: Oh, absolutely. Yes, it’s on par and in certain cases where you have, say, places like the plains or Texas where you have premium wind sheds, it can be more cost competitive than natural gas. And two factors: These technologies have become just generally cheaper, more efficient to build, but the technology has gotten better. They generate more megawatt hours on the same footprint. Solar is probably the biggest example of that. The tracking technologies that turn the panels to face the sun throughout the day have really increased the output for those facilities. Those technological advancements and the CapEx declines have really led to these being very efficient technologies developed.

Stone: I just want to note one other thing here that’s very interesting. In this interconnection queue, with all these community sources, storage is actually a pretty significant part of that. I wanted to get a little bit more insight into that, and I know also that the FERC, the regulator, has made some rulings in recent years to pave the way for storage to more fully and easily participate in the market. I wonder if you could tell us a little bit about that, as well.

Borgatti: Yes, absolutely. About 15% of all the projects that are in the PJM queue right now are stand-alone battery storage technologies. And increasingly so, we’re seeing deployment in what we call “hybrid resources,” which is a combination of, say, a renewable technology like solar or wind with a battery. And so the battery and the renewable technology work together to produce energy.

That’s an attractive model because — I’ll lay my cards on the table here. I’m a big fan of clean energy. I think this is an important transition for us environmentally here, but I’m also cognizant of the fact that we need to maintain a reliable system and make sure that we have enough energy at all times to keep the lights on here, in a place like PJM, as well as anywhere else. If you think about solar being the most obvious example here, solar works really well during some parts of the day or some parts of the year, but times like, say, nighttime or winter are more challenging from a reliability and just a generation perspective.

Hybrids are attractive because the battery can store excess energy from those facilities and then deploy that energy at periods where it’s, say, neither sunny nor windy and make that technology look more like a conventional generator that would be dispatchable or provide on-demand power to PJM here. FERC has recognized that. Recently they required all of the ISOs and RTOs around the country to make sure that they removed barriers to the greatest extent possible to these resources, so that they could access wholesale markets.

More recently than that, too, FERC also issued something called “Order 2222,” which increases the opportunity for small, distributed resources. So think about charging stations for electric vehicles, coupled with, say, solar panels on someone’s roof. Those technologies can now aggregate together into a portfolio of resources that will then be able to access these markets. So yes, you’re looking at batteries definitely becoming an increasing part of the story here, and I only expect that trend to continue going forward.

Stone: And that’s really interesting. So the little guys could aggregate to become one big guy and participate in the wholesale market, alongside a coal or a wind or a generator — whatever it may be — utility scale stuff.

Borgatti: Yes, absolutely. It’s incredible. It’s like one of those “the future is now” moments, where we’d imagine these virtual power plants years ago, and we probably are at a place now where, between FERC mandating better regulatory treatment for those technologies, and frankly the technologies themselves maturing, that opportunity is much closer to being a reality than it certainly was a very short time ago. It’s definitely an exciting time there.

Stone: I want to take a step back for a moment and get some geographic perspective here. So we talked about the footprint of PJM in 13 states plus Washington, D.C. It really extends from New Jersey down to North Carolina on the Atlantic coast, across Pennsylvania, West Virginia, Kentucky, coal-rich states — all the way to Illinois. West Virginia, I might have just said, is included, as well. Are we seeing — all these states have very different outlooks for renewable energy, very different policies and initiatives. Are we seeing these renewable resources come evenly across the PJM footprint, or is it really, as you kind of alluded to earlier, really focused on those states that have some policies that are really trying to expand the clean energy generation within those states’ boundaries?

Borgatti: Yes, you’re absolutely right. There’s a very diverse policy profile when you think about the local energy landscape at the state level here. Places like West Virginia and New Jersey certainly have very different views on the energy world, and that’s okay. In terms of the geographic diversity, this is another one of those cases where the concentration of resources does differ somewhat by technology.

So again, if we think about offshore wind, PJM provides open access to technologies wherever they want to be in their footprint. They’ll plug a solar plant into New Jersey as readily as they’ll plug one into West Virginia. But West Virginia doesn’t have a lot to offer the offshore wind industry, and so certainly in that case, it’s a pretty obvious example where you see clustering along the shore and frankly at the relatively few points of interconnection that are close and accessible from the ocean here.

You also see clustering in places like Virginia. Virginia has a very aggressive RPS mandate. Dominion, which is one of the largest regulated utilities in Virginia, is actively procuring lots of clean energy in response to that, and you see people looking at that opportunity there and lots of renewables in Virginia.

But what makes PJM a particularly attractive place here is that big, robust wholesale market that covers the same territory that you just described — all the way from New Jersey to Michigan, and then south to the Carolinas. And what that means is, let’s say I’m an interested corporate buyer, and my headquarters is in Chicago, which happens to be within the common territory in PJM. I would have the ability to transact for renewable power with a generator that would locate it anywhere in PJM. And so what you see actually is a lot of the more recent trend in the development cycle has been focusing on places like West Virginia and Kentucky. For example, you see mine reclamation sites, where they flattened the tops of mountains to mine for coal years ago, and now those mines have since closed down. That’s a great opportunity for solar developers. Energy infrastructure is already located there for when the mine was active. Nice flat piece of land that’s not being used for another purpose. And so there’s an opportunity to use PJM’s market to transact and develop power throughout the region, and in places you might not expect, like a West Virginia or a Kentucky.

Stone: Okay, so I think one of the interesting questions here, one of the critical questions here that we need to take a look at is there is a very large number, again, of these clean resources of all types that are waiting to get into PJM. But not all of them will be built. Not all of them will be interconnected. Can you give us some guidance? What portion of the clean energy resources in the interconnection queue will actually enter the market? And is there a historic guidance that helps us here to understand what’s going to come through?

Borgatti: Sure. So PJM keeps a running tab on interconnection statistics, in terms of the number of projects or the number of megawatts of, say, energy or capacity, that ultimately enter the queue, and then those that finally reach COD. And it’s pretty astounding. So depending upon which one of those metrics you use, only about 15 or 20% of the projects that actually enter the queue end up reaching COD. And to be truthful, the failure rate is probably greater for renewable resources for a couple of reasons here.

One is, like we said a little bit earlier here, this is sort of a more recent trend in PJM. Not to say that renewable technologies haven’t been around for some time. They most certainly have. But the boom cycle here at PJM is fairly new. And so you’re looking at kind of a clustering of data at the end of this period that PJM is looking at, and lots and lots of information about thermal generators going back decades.

The other piece has to do with the development model that many of the renewable developers use. Let’s say that I was a renewable developer that wanted to build a 500 megawatt solar plant in PJM. My goal would be to find an off-taker that would want to purchase the power from that, to enter into a contract with that person for some period of time as an opportunity to stabilize cash flows and to make my investment viable here.

And let’s say I only found a buyer that, say, wanted 200 megawatts of my facility. Well, I wanted to build a 500 megawatt plant initially, but I’d be okay building a 200 megawatt plant. That would be fine with me. But in order to have that flexibility, what folks will do is they’ll take that 500 megawatt plant and chop it up into, say, five 100-megawatt queue positions. Now that looks to PJM like five different power plants. It looks to the developer like an opportunity to sort of cleave off and to right-size the size of their project, relative to what their off-takers are looking for here.You see a lot of projects that are in the queue now that some might call speculative. Others might call it sort of an optimization strategy, where folks are submitting multiple queue positions, trying to be able to right-size that relationship with their buyer.

Stone: This brings up a really interesting issue that you have just kind of opened up for us, and that’s the fact that these resources in the queue can be broken up in many different ways. They can come as separate projects. I think the sum effect of this from PJM’s perspective is that they are really overwhelmed. There are so many resources that are in line to interconnect right now, more than ever before — regardless of whether they’re clean or fossil, we just have a lot now. They’re coming and they’re going. And PJM is really, really backed up. How is that going to impact the timing of getting these resources into the market? PJM just can’t handle all of these requests.

Borgatti: You’re exactly right. That’s a real challenge. Probably, to be honest with you, that is the preeminent challenge that renewable developers face in the region here. You’re exactly right. From PJM’s perspective, those 500 megawatt queue positions that they have need to be studied like five individual generators. You need to put the same work into each of them, even though they suspect, perhaps, that that’s me as a developer just looking to have an opportunity, and in all likelihood, I’ll cancel some of those projects at some point in the future.

And so what you’ve seen here is that this interconnection process was built about 20 years ago, and it was designed for a world where you saw a couple of large, central-stationed generators coming through the queue, not the multitude of small, easily-configurable and manipulatable projects like we’re seeing today.

The interconnection process that they have now should be something that they’re able to complete in — on the order of two years. It is taking them roughly four, four-and-a-half years on average to complete that process.

Stone: Wow.

Borgatti: The important part about that statistic is that that’s the average, right? That means that 50% of the projects are on the other side of that. And that’s a real challenge, because if you think about where we are today in 2021, if you walk back four years, you’re talking about projects that needed to be in the queue and have been waiting to get developed since 2017. And there are projects that are in the queue, frankly from 2016 and 2015, too, that have just been waiting to get out of this process.

And so I think this is an area that PJM is rapidly trying to fix. They recognize that this is a problem. Truthfully, they recognize that their current model is unsustainable. And they know that they have to provide open access, right? That’s FERC’s mandate to them. And so they’re trying to change those rules now to be able to address that. But look, if you can’t get out of the queue, you can’t get into the market, you can’t satisfy somebody’s renewable energy goals, and that is a big factor, particularly for the timeline.

That uncertainty makes it challenging to land investors. It just leads to all sorts of difficulties here. And frankly it makes it hard with off-takers, too, right? If you’re a buyer, and you have an objective to have your company purchase a certain percentage of power from green sources, say by 2023 — when you look at the queue, how are you going to figure out which ones are going to get out of that process quickly enough to be able to satisfy that need? And so those delays are a real challenge here, and something that PJM is hopeful that they can fix with some new rules. We’ll see if they’re as successful as they hope to be.

Stone: So it sounds like a lot of uncertainty, and uncertainty is never good when we’re looking at these projects and investments going forward, for sure.

Borgatti: That’s exactly right. Investors do well with “yes.” They do well with “no.” Question marks are just a very, very big challenge, so I agree with that entirely.

Stone: You know, there’s one other big issue I want to bring up, and this was a subject of a recent podcast here on Energy Policy Now. But I want to bring it up in the context here again. And that is of transmission — who pays for the transmission? They call that “cost allocation.” If you are a new wind or solar generator, and you want to interconnect in certain circumstances —

Well, first off, you don’t only just pay to interconnect your generation to the grid, but you might also have to pay to reinforce or buttress the grid to handle the extra electricity that your resource would put onto the system. Tell us about some of the cost issues, and is that going to be a break or a reality check on some of these projects that are in queue in hopes of connecting to the system?

Borgatti: Absolutely. It’s probably one of the single biggest factors here for some of the challenges that renewable development sees in PJM. You’re exactly right about the need to buttress the system and to reinforce it to accommodate that energy. Not to dive too far into the weeds here, but the way that PJM does those studies is they look at all of the projects that sort of come before you in the interconnection queue. And they look at their impact on the system and what’s necessary to accommodate those resources that came before you. And then they layer in your resource on top of that and determine what other upgrades you need to do to the system to accommodate all the resources in front of you, and yours.

And so when you see places like Virginia and like New Jersey or Maryland, where you have resources that are clustering in an area to respond to, say, a public policy objective, like an RPS or an offshore wind goal, in the case of New Jersey. You’ll see that there will be this multiplier effect, because those studies that PJM does assume — say in the case of offshore wind — that all of the offshore wind resources that come before you are going to get built, and therefore we need to build a system to accommodate them.

And you’re seeing some of the interconnection studies for offshore wind in New Jersey have literally billion dollar price tags associated with them. Now in all practicality, that number is not right. New Jersey is going to run its RFPs. It’s going to select a project or several projects out of that mix. Some of those projects won’t end up winning, and they will transition on. But they’re being studied as if they’re all going to plug in.

And so we’re having conversations now about whether there is really a more optimal way to do this. And rather than just saying to the generator, “You fund a hundred percent of what it takes for you to put the grid back into a steady state,” is there an alternative sharing mechanism, say, with end-use customers or ways to sort of better optimize this system? And actually kudos to New Jersey. They’re the first state in PJM to take advantage of something called a “state agreement approach process” that allows PJM to run a solicitation for transmission solutions that would be a better alternative to plug in offshore wind to their system.

Now that process isn’t done yet, but it would be really interesting to see what those results mean in terms of potential cost savings from a cost allocation mechanism that directly plans for these resources, instead of waiting for them to show up in the queue, identifying upgrades, and then responding that way. I think PJM and New Jersey are hopeful that this sort of will be a test case and will show the value of that more optimized planning solution, and I certainly look forward to learning that answer, too.

Stone: I want to jump here for a moment. We’ve been talking, obviously, about clean energy and clean energy in the queue, expectations for a future of clean energy growth. At the same time, over the last couple of years, and maybe in the last year most specifically, we’ve seen a rather dramatic decline in new gas generation interconnection requests into the PJM system. Can you give me a little bit of insight into why, as renewables are increasing at this point — at least in the queue — we’re seeing that decline in gas at the same time?

Borgatti: So there are really two drivers there. If you think about the economics for these resources, you’re looking at the renewable technologies certainly being cost competitive with gas. But then they have the advantage of buyers and policy support that are looking to purchase their commodity, right? So that’s an example of willingness to pay. It’s buyers, whether they’re corporate entities like an Amazon or a Microsoft or a Facebook, saying that they want to head up a corporate clean energy bill. Or a territory like Washington, D.C., which PJM treats like a state, says they want to be a hundred percent renewable by a certain period of time. If you take two resources that are equally cost competitive, and you say, “Hey, one person wants to buy the commodity from one or another,” that affects those economics. And so that sort of driver is fundamental to the business case for gas.

The other challenge is that power prices are down. You’re seeing the effect of that trend, where we brought on thousands of megawatts of very efficient combined cycles, so pushing down commodity prices in PJM. They can generate energy very cheaply. The overlay very inexpensive; renewable resources on top of that, and that just means that power prices are lower, and they’re getting to a place where the forward outlook for power prices in PJM just doesn’t sustain investment in new and combined cycles here.

So I think what you’re seeing is that there are some resources that are still left in the queue, but this is the tail end of that trend. It’s certainly plausible another gas plant or two may get built here, but I think that we’re at the end of that cycle, and we’re going to see the transition focusing much more on hybrids and batteries as replacements to legacy generation going forward.

Stone: So we’re looking at an inflection point, it sounds like, really a structural change in the market in terms of what types of resources are going to be coming into the market.

Borgatti: Yes, absolutely, and you know, just looking at the queue statistics, to give you some examples here. If you look at the resources with, say, a 2024 COD date, there’s about 3,000 megawatts of gas that’s in the queue right now, looking to come online in 2024. Compare that to solar and storage, there’s 24,000 megawatts of solar, and another 12,000 and almost 12,600 megawatts of storage out there. So you just see sort of that downward trend where gas is falling off, and there’s just a significant interest in bringing renewables on. Waning period for gas assets, and a rising period in the investment cycle for renewables, for sure.

Stone: You know, there’s a possibility we may never have even gotten to this point. It’s a little bit debatable, but there has been a process going on in PJM over the last three years or something, which looks like it’s finally resolved. It’s surrounding something called the “minimum offer price rule.” And this was going to set a price floor on new renewable energy resources such as wind, solar, coming into the PJM market that had benefited from subsidies from the states. And the whole idea was that it was going to defend the market from artificial price suppression. It looked like it was something actually also in defense of the higher-cost resources such as coal. And one of the interesting stories here is that this all came from the FERC. The FERC had said, “PJM, you’ve got to put this in place,” and then recently it said, “No, you don’t.” Can you tell us a little bit about what happened with that? It’s a great and crazy regulatory story.

Borgatti: Absolutely. That is one thing you get used to, working in this industry — regulatory whiplash. So your timeline is spot on. In 2019, the commission which was a series of commissioners that had been appointed under the Trump administration determined that they needed to apply the MOPR to any resource that was eligible to receive any financial incentive from the state. Now that didn’t mean that you were actually receiving one. You just needed to be eligible for one. So if you were, say, not actually getting RECs but you were eligible for them, that would trigger this mitigation.

And so basically that meant that sort of every renewable technology fell under — you know, was eligible for some type of incentive somewhere and was subject to MOPR mitigation. And what MOPR does, is it sets the lowest price that a seller can offer to provide capacity to PJM in one of PJM’s competitive options. It was originally intended to be something to prevent what’s called monopsony power. It’s the opposite of monopoly power. And what can happen is, let’s say a bunch of my buyer buddies and I got together and decided that we wanted to invest in a resource, so that that resource would enter the market at a very low price, just to suppress the clearing price in that auction so that the savings that I got from those lower prices exceeded the cost to develop that resource. That’s monopsony power. It’s a bunch of people getting together and sort of manipulating the market, like a monopoly entity could.

Stone: It sounds pretty illegal.

Borgatti: Yes, that’s right. It certainly has a nefarious tone to it, doesn’t it? And that was what MOPR was intended to do. In 2019, we expanded it into this big, broad-reaching, huge tent that sort of captured all of these resources here. Amazingly, it appeared from December of 2019 until September of this year, we have done an entire 180, and we have virtually eliminated the MOPR construct for all but a very limited set of cases where somebody is behaving in that kind of anti-competitive way, literally actively trying to artificially suppress clearing prices.

It’s a great story, too, actually because it demonstrates sort of the validity of the trend here, as well. I think there was a view at the time, back in 2019, that MOPR prices were going to mean super high offer floors for renewable resources. PJM, for example, was saying that renewable resources were only economic if they received capacity payments equal to about $200 a megawatt day, which is really, really, really high. And there was fear when those rules came in that there would be no new entry in the market as a result of just these rules sort of pushing renewables out.

And what we see is that actually that’s not true. We ran a capacity auction earlier this year under those rules, and the solar and renewable resources were able to demonstrate their unit-specific cost assumptions to PJM and end up with unit-specific MOPR prices that were able to clear the market. We printed historically low clearing prices in that auction, and we still saw about 1,500 megawatts of new entry from wind and solar.

So MOPR was certainly a boogeyman. It was a challenged policy for sure. But at the end of the day, it demonstrated that in many cases, these resources are far more economic than we think, and it certainly wasn’t the death knell to the industry that some thought it may be.

Stone: I think it’s also kind of funny, in a regulatory way — funny in a regulatory way that Richard Glick, who’s now the Chairman of the FERC, when he was in the minority, he hated the broad MOPR. And then I think earlier this year, he came back, and now he’s the chairman, and now you’ve got a 2-2 split, Democratic-Conservative on the commission. And he basically, as I understand, said to PJM, “Either you switch back and you remove the MOPR, its application to the renewable resources, or we’re going to force you by the end of the year to do that.”

Borgatti: That’s exactly right. I mean, it was very close to that full-throated of a statement. I mean the commission opened a series of investigations into the capacity market, into mitigation. Truthfully, those proceedings called in some of PJM’s other ISO, RTO neighbors. But it was fairly transparent to see that that was directed almost entirely at them, and yes, Glick was very serious that if PJM didn’t do what he had hoped they would and roll back the MOPR, that the commission was going to act to do that, too.

So that’s exactly the story. I mean, it is astounding that we operate in a regulatory space that can have that big of a change — literally a 180 degree swing in such a significant policy in such a short period of time. But nonetheless we did, and the cycle goes on.

Stone: You know briefly, the dynamics we’re talking about today, in PJM in particular as they relate to the interconnection queue and the high number of renewables and clean energy that’s in that queue — is that being repeated in some of the other electricity markets — in New England, in MISO, or is it really specific to PJM?

Borgatti: No, it’s a national trend or issue. Call it a “challenge.” That’s probably the best way to say it. It’s a national challenge that all of the ISOs and RTOs are facing. Actually the single largest market for renewable deployment rights is actually ERCOT down in Texas. It sort of makes sense. It’s sunny and windy and flat, and there’s lots of open space, which are all good things for renewable development. But in New England, for example, we see that the states’ energy policies in large part are focused on distributed technologies. Massachusetts, for example, has its SMART program, which is kind of a community solar type of paradigm, a community solar and storage paradigm on steroids, and that is really challenging those local utilities, challenging us in New England, as well.

And you know, look, this is the story with any industry that is experiencing rapid change, right? There are just challenges with that. And I think all the ISOs and RCOs have seen a significant uptake in the number of projects that they need to process, and challenges associated with the fact that, in many cases, these resources are located geographically far away from loads that are going to use their power. And they’ve got to figure out how to move power long distances across their grid.

So PJM is probably the most challenged as a result of the way they process their queue and just the rapid uptick in renewable energy space, but they’re not alone. This is a national issue.

Stone: So final question here. High expectations for this renewable queue. A lot of obvious hurdles that need to be overcome. I’m going to ask you, if you don’t mind, to look into the crystal ball for just a moment here. Looking 3, 5, 7 years down the line, what does this high level of renewables in the PJM queue mean for the generation mix in the market in a half decade or so?

Borgatti: I think it’s going to be a significantly different world in that 5-year spectrum that you’re talking about. If you look at the resource mix in PJM, there’s actually still quite a bit of coal on their system today. I believe it’s on the order of roughly 30-ish thousand megawatts that are still on the system.

And if you look at the revenue information that the independent market monitor for PJM puts out, most of those resources are running very close to an operating loss in PJM’s market. And so any further stress from lower energy prices or capacity prices is likely to be terminal for the coal fleet. So my view is that coal will be very, very close to gone in the 5-year horizon. And you’ll look at a system that is mostly gas, with a higher penetration of renewables, and a significant amount of base-loaded nukes.

In the renewable sector in particular, I think they will have seen a trend that has moved quickly away from stand-alone solar or stand-alone offshore wind resources and is really focused on hybrids. Battery costs are coming down. There are clear operational and reliability benefits from pairing renewables and storage together. I think that we’re right at the apex of the point where the cost curves and the revenue opportunities start to pencil out for hybrids. And so we’re looking at lots of batteries on the system, not very much coal. Gas, nukes, and quite a bit more renewables. So it’ll be an exciting future for sure.

You’ll have to have me back in five years to see if I was right.

Stone: Will do; that’s a plan. Mike, thanks very much for talking.

Borgatti: My pleasure. Thanks so much for having me. I look forward to chatting again soon.