As electricity demand grows, the power grid is increasingly constrained. Grid reliability depends on having enough capacity to meet peak demand, and power capacity auctions are a critical component of electricity supply planning in many parts of the United States.

For the PJM Interconnection, one of the largest regional transmission organizations (RTOs) in the country, the Base Residual Auction (BRA) is a crucial annual event. Its primary purpose is to procure capacity commitments from power supply resources to ensure grid reliability.

Here’s how it works:

• - Capacity Reserves: The BRA secures capacity reserves for the upcoming delivery year. These reserves are foundational for meeting projected electricity demand during peak periods of consumption, extreme weather events, or unexpected power generator outages.

• - Market Mechanism: Participants (including power generators, demand response providers, etc.) submit offers to supply capacity during the coming year. The auction clears these offers based on cost and reliability criteria, resulting in committed capacity.

There are several factors that influence the BRA results, including:

• - Supply-demand balance: Tightening supply-demand conditions impact auction results. If supply falls short of demand, prices rise, affecting both energy costs and capacity payments. Of course, if supply exceeds demand, prices fall.

• - Resource mix: The mix of generating resources (coal, gas, renewables) matters. Changes in fuel prices, power plant retirements, and new investments impact auction dynamics.

• - Policy and regulations: Environmental policies, state incentives, and federal regulations shape resource availability and investment decisions.

Reducing costs through energy efficiency

Customers can also save money through various energy management initiatives. Improving the energy efficiency of building systems or aligning their usage schedules to when energy prices are lower can contribute to significant savings. See our Flex Optimization page for more information on how we can help.

A great first step is often getting more insight into how a company uses energy. As the energy system grows, digitizes and decentralizes, organizations will require finer, real-time data to effectively adapt to grid conditions and market prices. Energy platforms like ours (see Flex Analytics) can help fill data gaps.  

Maximizing energy flexibility

Optimizing energy profiles can also mean adding flexible energy capacity onsite at facilities, such as with solar and battery energy storage systems. By adding onsite capacity, companies can

• - Bring energy closer to where it is consumed to reduce energy waste from transmission and distribution

• - Utilize lower carbon power sources onsite to reduce carbon footprint

• - Engage an alternative energy source, beyond grid power, when the grid is more expensive or constrained

• - Create additional energy capacity that can be monetized with demand response programs

We can help companies model the potential benefits of adding distributed energy resources. (See our Flex Optimization page)

Planning events, like PJM’s Base Residual Auction, provide important market signals to regulators and consumers alike. As demand for electricity increases, companies have multiple options to help themselves and the market address energy needs.

This information may contain forward-looking statements.  Any statements that are not historical facts, including statements about bp's beliefs or expectations, are forward-looking statements.  These statements are based mostly on publicly available information, estimates and projections and you should not place undue reliance on them.  These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict.  Therefore, actual future results and trends may differ materially from what is forecast, suggested or implied in any forward-looking statements herein due to a variety of factors.  Factors which could cause actual results to differ from these forward-looking statements may include, without limitation, general economic conditions; conditions in the markets; behavior of customers, suppliers, and competitors; technological developments; the implementation and execution of new processes; and changes to legal, tax, and regulatory rules.  The foregoing list of factors should not be construed as exhaustive.  bp disclaims any intention or obligation to publicly or privately update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.