PJM'S RELIABILITY PRICING MODEL- KEY FEATURES
PJM Interconnection, a regional transmission organization (RTO), administers the wholesale electricity market in the US Mid-Atlantic and Midwest. The RTO operates the world's largest centrally dispatched competitive wholesale electricity market. PJM's Reliability Pricing Model (RPM) is a new mechanism designed to provide market-efficient incentives to resources, via capacity market payments, to ensure the short- and long-term availability of those resources throughout the RTO to maintain power system reliability.
*The RPM provides for a three-year forward procurement of resources. Under the RPM an auction soliciting offers for capacity resources is held three years prior to when the resources need to be delivered. The offers for capacity enable the construction of a supply curve. Through the intersection of a demand curve and this supply curve, the auction determines in advance the price that will be paid to the resources selected to deliver capacity.
*An administratively determined downward sloping demand curve is based on the net cost of new entry. This curve, known as the Variable Resource Requirement (VRR), replaces a vertical demand curve and therefore allows for less price volatility. RPM is locational and therefore incorporates subregional VRR curves; consequently the price for capacity can be different at different locations in the RTO.
*RPM allows demand-side, transmission, and generation resources to participate. Demand-side resources, transmission upgrades, and generation capacity are provided capacity payments based on the amount of capacity benefit they provide to the system.
