PJM’s 2017/2018 Transition Auction Hits Capacity Performance Target

PJM Interconnection announced on September 9 that its second transition auction, opened on September 3, achieved its targeted procurement of resources to meet strict Capacity Performance (CP) standards for the 2017/2018 delivery year.

Specifically, the targeted procurement quantity for the 2017/2018 delivery year was 112,194.5 megawatts (MW) – or 70 percent of the updated reliability requirement for the 2017/2018 delivery year. The auction procured the entire quantity of 112,194.5 MW of CP resources at a clearing price of $151.50 per megawatt day (MWd), about $60 below the offer cap.

PJM said that 133,768.8 megawatts (MW) were offered into the auction and – of the 112,194.5 MW that cleared – 102,177.5 MWs converted their obligations from the base residual auction obligations.

The CP standards are intended to guarantee peak load during extreme weather events. CP Transition Auctions for the 2016/2017 and 2017/2018 delivery years – both held within the past few weeks – are part of a five-year transition to a single capacity product type, beginning with the auctions for the 2020/2021 delivery year. The five-year window for the conversion provides participants with the opportunity to invest in resources; as well as sufficient time to build and make the improvements necessary to meet the operational and performance requirements of the CP initiative.

Indeed, Capacity Performance requires that resources – generation, demand response, and energy efficiency – produce electricity when called upon regardless of extreme weather or system conditions. Committed CP resources that do not perform when called on will face substantial non-performance charges.

However, while grid reliability will increase greatly under CP, so will costs to consumers. The extra price tag for this transition auction will be $1.7 billion, according to PJM Interconnection.

In its report on the auction, PJM was quick to say that the money will be well-spent. “Once again, customers will receive the reliability benefits of Capacity Performance, which ensures that resources must be available to perform without excuses when we need them most,” said Stu Bresler, PJM senior vice president – Markets.

“The successful results demonstrate that resource owners are preparing and making improvements to meet their commitments to the higher standards of availability and performance,” he added. “Overall, the results met our expectations, and prices cleared significantly under the $210.83 offer cap.”

The transition auction procured 700 MW of demand response and 932 MW of energy efficiency. Similar amounts of both resource types cleared in the previously held transition auction for 2016/2017.

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