Combined Cycle, Gas, New Projects, New Projects, New Projects, Nuclear

PJM Auction Results Mean Less Revenue for Power Producers

PJM Interconnection (PJM) yesterday announced the results of its capacity auction for the 2019/2020 year. Prices were lower than expected, meaning utility bills will be reduced for customers, while revenues will be less for power producers during the affected year.

PJM procured 167,306 MW of power at a clearing price of $100 per MW-day in the majority of the region. It met a reserve margin of 22.4 percent, ensuring reliability and availability of power for customers during the term.

“Prices were lower than some analysts had expected and lower than the last year’s auction results simply because of market fundamentals of changes in supply and demand,” said Stu Bresler, senior vice president of markets. “The load forecast is lower, and there was a large amount of new gas-fired combined-cycle generation clearing for the first time in the auction.”

The 2019/2020 auction was only the second such event to adhere to strict new pay-for-performance standards. Under this system, which was approved by the FERC in time for last year’s auction, power producers must agree to a “Capacity Performance” provision whereby they commit to deliver electricity whenever PJM determines it is warranted by customer demand. As part of that agreement, generators may receive higher capacity payments which they are expected to invest in plant infrastructure, but they must also pay fines for generating less power than they agreed to. Generators that exceed their capacity commitments will be entitled to funds collected from generators who underperform.  

In this year’s auction, at least 80 percent of resources had to clear according to Capacity Performance criteria. Twenty percent of capacity was allowed to clear the auction as “Base Capacity”, in which power producers must adhere to the same criteria as Capacity Performance, but only during the summer months.  Next year’s auction will require 100 percent of power sold at auction to comply with the new standard, which has been called a “no excuses” policy for generators.

The auction saw both winners and losers.

Solar generation cleared 335 MW in capacity, while wind generation cleared 969 MW in capacity.

The auction also attracted 5,074 MW of new natural gas-fired generation.

“The results demonstrate investors’ continued high degree of confidence in the competitiveness of natural gas-fired generation and natural gas prices going forward and that they are willing to bear the risk of that investment,” said Bresler. “The market enables consumers to benefit from assured reliability at the most competitive, economic cost.”

Dynegy cleared a total of 9,804 MW of capacity at a weighted average price of $134 per MW-day, amounting to about $481 million in capacity revenue for the term.

Exelon did not fare so well. The utility said its Quad Cities nuclear plant in Illinois and Three Mile Island nuclear plant in Pennsylvania did not clear the auction, increasing the chances of Quad Cities’ shut down. Exelon’s other nuclear plants in the PJM region cleared the auction, with the exception of Oyster Creek in New Jersey, which is set to close in 2019 and did not participate in the auction. A portion of Byron nuclear plant in Illinois did not clear the auction, but the plant is committed to operate through May 2020.

PJM Interconnection runs the electricity grid that serves 13 states plus the District of Columbia. About a fifth of all U.S. residents receive electricity from the organization. It procures resources three years in advance to ensure reliable electricity supply will be available during extreme weather or other system emergencies.