Capacity Performance

PJM Capacity Auction: Bad News for generators, Good news for customers

Newsletter8header-06.15.16

PJM capacity auction results for the planning year of June 2019 to May 2020 announced 5/24/16, were down significantly, almost 40% across most PJM markets from the prior year.   BAD news for generators as it means less revenue to them, but GOOD for consumers in lower costs.

PJM procured 167,306 MW of power at a clearing price of $100 per MW-day in the majority of the region, down from $164.77 per MW-day last year.  It met a reserve margin of 22.4%, meaning that PJM has excess capacity in the amount of 22.4% of expected peak demand.  It is also the highest reserve margin in PJM auction history, ensuring reliability and availability of power for customers during the term.


PJM Capacity Cost Graph - 6.22.16


The results were somewhat surprising considering PJM’s capacity performance (CP) program. Under this program, which was approved last year, power producers that agreed to deliver electricity whenever PJM determines it is warranted would receive higher capacity payments. PJM’s thought or hope was that the increased revenue would result in generators re-investing into their plant infrastructure, secure fuel contracts, and thus increasing reliability during peak demand periods. However, non-performance under this program results in significant penalties. Penalties that did not exist under the old base capacity program.

The 2019/2020 auction is only the second such event to adhere to PJM Capacity Performance program. In this year’s auction, 80% of the resources had to clear according to “capacity performance” with the remaining 20% clearing under the old capacity product “base capacity”. Next year’s auction for 2020/2021 will move to 100% capacity performance.
The takeaway from this year’s auction and the decrease in price is that there would appear to be adequate generation to meet demand, with more coming on-line.

 

Capacity Performance Reminder

PJM-money-photo

 

With all of the commotion around the PPA filings, it seems like it has been years since the announcement of the capacity performance approval. It is important to mention that Capacity Performance will become effective very soon, in June of this year. It has come to our attention that various suppliers have begun to send out correspondence in regards to it. As a friendly reminder, if you signed into an agreement prior to the June 5th, 2015 announcement that extends beyond June 2016, it is very likely that you will see an increase to your current electric supply rate.

 

Please see below for a short recap of the approved federal regulatory change:

  •  In short, “Capacity Performance” (CP) is a reformation that was approved by FERC last June, that will ultimately increase your current electric capacity cost.
  • CP is a new product developed in response to the extreme conditions during the 2014 Polar Vortex phenomena, where 22% of total capacity experienced supply outages.
  • The change to the design of PJM’s capacity market will act as an insurance policy to protect the grid from future power interruptions.

 

Customers with supply contracts beyond June 2016, will likely see pass through charges (change of law) effective with the June 2016 billing month.
For a more detailed look on how capacity performance will affect you and your business, download our Capacity Performance White Paper.