You are no doubt familiar with your utility as the entity that delivers your electricity. But there is another important player in getting electricity from a power plant to your home, the RTO or Regional Transmission Authority. For Virginia, the RTO is PJM. PJM is responsible for managing the transportation of electricity from power plants to the various utilities in its territory. Understanding PJM’s role in the centralized electricity system is important to understanding how electric markets work and in turn what the development of solar means for these markets.
PJM is an abbreviation of Pennsylvania, New Jersey, and Maryland after the territories where the first utilities joined together. Today, the PJM includes all or parts of New Jersey, Pennsylvania, Delaware, Washington, D.C., Ohio, Virginia, Kentucky, North Carolina, West Virginia, Indiana, Michigan, and Illinois. It manages electricity distribution for more than 60 million people and $42 billion worth of electricity.
To understand what PJM does, it is helpful to think about the process of getting electricity from a power plant to your home with our current ‘centralized’ model of generation. In this model, energy is generated by power plants often hundreds (or even thousands) of miles away from the end user. This model has three parts: generation, transmission, and distribution. Generation is the production of electricity at a power plant. Transmission is the middle portion of the process that sends electricity from power plants sometimes over long distances to a distribution network. Distribution is a utility routing that electricity to your home or business.
PJM manages the market where power plants bid to provide electricity to utilities within PJM territory. It monitors the transmission system to ensure that the right amount of electricity is being supplied at all times. Auctions are conducted three years in advance to determine the price for base generation based on forecasting models for capacity needs. Baseload generation is the largest portion of the electricity generation market and historically includes big power plants using coal, natural gas, nuclear, and large hydroelectric dams.
To function properly, our electricity system must be in balance at every moment between what is being used (consumption) and what is being produced (generation). Because of that requirement, PJM also holds energy market auctions to meet additional and precise demand. Some auctions trade as frequently as every five minutes.
Wind and solar are increasingly playing a role in these auctions. The most expensive power is during peak demand loads that are frequently in the height of summer. Solar helps offset the power needed during many of those peak periods. This means the utility is buying less expensive electricity and all ratepayers save money.