Prices and Reliability Up, with PJM’s First Capacity Performance Auction

The first PJM Interconnection capacity auction to include the new Capacity Performance requirement attracted a strong response from resources prepared to meet the new pay-for-performance standards, the regional transmission operator reported on August 21.

Under Capacity Performance, generators that pledge to make their capacity available during peak-demand periods will receive higher payouts than others – and will pay penalties, should they fail to deliver.

Think of this like an insurance policy,” PJM has said. “For a small additional cost –payment to generators [that] perform well – consumers will have greater protection from power interruptions and price spikes during weather extremes.” By matching energy supply with future energy demand, three years into the future, PJM’s capacity market is designed “to attract needed investments in generation infrastructure to assure adequate power supplies in the PJM region.”

Overall, there were few surprises. PJM ratepayers will shell out $10.9 billion for capacity in the 12 months starting June 1, 2017 – an upward blip that had been predicted by industry analysts. Indeed, the bottom line rose $7.5 billion over the previous year.

The 2018/2019 delivery year clearing price for Capacity Performance resources – which include generation, demand response, and energy efficiency – is $164.77/megawatt-day (MWd) for all of the PJM service region; except the ComEd and Eastern Mid-Atlantic Area Council (MAAC) delivery areas, which broke out higher. The ComEd Capacity Performance clearing price is $215/MW-day; the Eastern MAAC price is$225.42/MW-day.

As part of the phase-in of the new standard, at least 80 percent of the cleared capacity in the 2018/2019 auction was required to meet Capacity Performance requirements. The remainder is classified as “base capacity,” which may be unable to commit to Capacity Performance standards and, therefore, is subject to penalties only during the summer peak period.

The base capacity clearing price for the RTO is $149.98/MWd, or about $15 less than the Capacity Performance price. The RTO clearing price in last year’s auction was $120/MWd. The base capacity price in ComEd is $200.21/MWd; in Eastern MAAC, $210.63/MWd; and in the PPL delivery area in Pennsylvania,$75.

Overall, the auction procured 166,837 megawatts (MW) of capacity, which represents a 19.8 percent reserve margin. Specifically, the auction attracted:

  • Over 3,500 MW of new generation – including more than 2,900 MW of new generating units and over 500 MW of updates to existing generating units.
  • A total of 11,084 MW of demand response, 1,484 MW of which is Capacity Performance.
  • A total of 1,247 MW of energy efficiency, 887 MW of which is Capacity Performance.
  • A total of 14,347 in renewable resources (solar, wind, hydroelectric).

On August 24, Exelon announced that its Oyster Creek, Quad Cities, and Three Mile Island nuclear power plants had not cleared in the PJM capacity auction for the 2018/19 planning year –and will not receive capacity revenue from this auction. Although capacity revenue in a single year is an important consideration in a plant’s long-term viability, it is just one of several factors Exelon will use to make decisions about its plants’ future operations, the Chicago-based utility said.. Exelon is obligated to inform PJM this fall if any of its nuclear plants will not be participating in the auction next year.

“The PJM market reforms are a step in the right direction to recognize nuclear energy’s high reliability, and while three of our plants in PJM did not clear, we view the auction results as an encouraging sign that these reforms will begin to level the playing field,” said Exelon CEO Chris Crane. “We will consider auction results, along with other data points, including Environmental Protection Agency’s Clean Power Plan, as we make decisions about the future of these critical long-life assets.”

Another surprise was the “lack of new construction,” UBS Equity Analyst Julien Dumoulin –Smith, based in New York City, told Retail Energy Buyer in an emailed note on Monday. “With only 3.5 GW of new construction and uprates incrementally clearing this year’s 2018/19 capacity auction, we see growing evidence that last year’s +6 GW increase may have been the peak for new gas-fired generation within PJM.”

However, perhaps the biggest bombshell, according to Dumoulin-Smith, was the strength of demand response (DR) resources. “DR was actually up year-over-year, despite the headwinds of higher-cost Capacity Performance (CP) compliance. That said, given DR’s solid historic track record of performance, CP penalties are likely not too daunting for aggregators.”

Normally held in May, this year’s auction was delayed until this month to allow it to include the new Capacity Performance requirement approved by the Federal Energy Regulatory Commission in June.

Two transitional auctions to integrate Capacity Performance into years for which the forward auctions already have been held – the 2016/2017 and 2017/2018 delivery years – are being held on August 26 and 27, and on September 3 and 4, respectively. Capacity Performance is targeted to be the only capacity product in PJM for the 2020/2021 delivery year.



OSHA ITA Cheat Sheet
Sponsored By: VelocityEHS

Energy Efficiency Playbook - Your Guide to Smarter Energy Management and Savings
Sponsored By: Lucid

Energy Manager Today Product & Project Awards 2018
Sponsored By: Energy Manager Today

What to Expect from Energy Markets in 2018
Sponsored By: EnerNOC, Inc.


Leave a Comment

User Name :
Password :
If you've no account register here first time
User Name :
User Email :
Password :

Login Now
Translate »