Generators that provide capacity to the largest U.S. power grid are going to get paid a lot more for guaranteeing electricity when the market needs it.
Cleared nuclear capacity fell by more than 7 GW from PJM’s last base residual auction, while demand response, renewables, gas and coal all saw their shares expand.
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.
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.