By Rich Heidorn Jr.
New gas-fired generation and a near doubling of imports caused a big price drop in PJM’s annual capacity auction, the RTO announced late Friday.
Prices ranged from $59 to $119/MW-day — down 29% to 68% — in most of PJM, although the Public Service Electric and Gas. Co. Locational Deliverability Area saw a 31% rise to $219.
More than 169,000 MW of unforced capacity was acquired for the 2016-2017 planning year, giving the RTO a projected reserve margin of 21.1%.
“Prices were generally lower than last year’s auction due to competition from new, gas-fired generation, low growth in demand because of the slow economy and increased imports from other regions, primarily to the west of PJM,” said Andy Ott, senior vice president of markets.
The annual Reliability Pricing Model auction cleared a record 5,463 MW of new generation and 7,483 MW of imports from outside PJM, nearly double the level of imports from a year ago. Most of the imports — 4,723 MW — came from the Midcontinent Independent System Operator (formerly Midwest ISO).
Demand response contributed 12,408 MW, a reduction from last year, while energy efficiency cleared 1,117 MW, a 21% increase.
Demand Flat
The auction is the first to include the East Kentucky Power Cooperative (EKPC), whose load and resources will be integrated into PJM on June 1, 2013. EKPC’s peak load of 2,200 MW — offset by resources the cooperative owns or controls — pushed PJM’s reliability requirement to 180,332 MW.
But for the addition, PJM’s reliability requirement would have been unchanged from the 2015/16 planning year, and below that for 2014/2015.
Market Mitigation
As in past auctions, the RTO failed the Three-Pivotal Supplier test for supply-side market power. As a result, prices for all existing generation were limited to the lesser of the supplier’s offer price or approved offer cap.
Gas-fired combustion turbines and combined cycle generators that have not cleared a previous RPM auction were subject to the Minimum Offer Price Rule (MOPR) as a check on buyer-side market power. PJM granted exemptions to the rule for 11,821 MW of “competitive entry” generation — winners of competitive, non-discriminatory requests for proposals open to both new and existing resources — and 1,433 MW of self-supply generation. The exemption procedure was approved by the Federal Energy Regulatory Commission May 2. (See “Split Decision on MOPR.”) Only 4,915 MW (37%) exempt generation offered cleared.
New Generation
About 82% of capacity offered by new generation units cleared in the total RTO, but its success was highly dependent on geography, with only 27% clearing in EMAAC versus 91% in MAAC.
About 89% of capacity additions for 2016/17 were from natural gas-fired units, mostly combined cycle, with an additional 8% from coal-fired steam units and the remainder from nuclear, diesel and wind.
Imports
Imports offered increased 90%, and virtually all of it cleared. West of PJM imports nearly doubled to 7,081 MW over last year’s auction. MISO offered and cleared 4,723 MW, including generation from areas that will be integrated into MISO by the 2016/2017 Delivery Year. MISO’s installed capacity will increase by more than 37,000 MW with the incorporation of Entergy and South Mississippi Electric Power Association (SME) in December 2013 and Cleco in January 2014.
“It’s really the only forward capacity market available for those regions,” Ott said in a press briefing this morning.
Demand Response Declines
Demand resources offered declined 27% and cleared DR dropped to 12,408 MW, a 16% decrease from a year ago. The biggest declines were in EMAAC and MAAC.
PJM attributed the drop to expectations of decreased prices and the increased scrutiny on DR’s ability to deliver promised resources.
PJM started a stakeholder process in October to standardize the information DR providers must supply to be included in the auction. The initiative was sparked by concern that DR providers might be overestimating or double-counting demand resources. DR offered more than 20% of the forecast peak load in some zones in the 2015/2016 base residual auction.
FERC rejected on procedural grounds rules approved by the Markets and Reliability Committee in March requiring demand response aggregators to provide officer certifications and additional information on their customers. The commission said the changes required amendments to the PJM tariff and thus had to be submitted to FERC for approval. (See “FERC Remands DR Information Requirements.”)
Although the requirements were not officially in effect for this year’s auction, the timing of the commission’s order — coming on April 19, the date DR Plans were due for inclusion in the auction — appeared to have caused more caution in DR providers’ projections.
Energy Efficiency, Renewables Up
While DR was down, energy efficiency offers increased 23% to 1,157 MW, 97% of which cleared.
Contributions from renewable generation also increased, with 871 MW of wind offering and clearing, a 9% increase over last year. Solar generators offered and cleared 90 MW, a 60% increase.
Ott said the increase reflected the rising targets in state energy efficiency and renewable portfolio programs. “It allows customers to monetize their investments,” Ott said.
Gas Continues Growth, Coal Declines
Natural gas-fired generation, which cleared capacity equal to coal for the first time in last year’s auction, cleared almost 65,000 MW this year, while coal’s cleared capacity declined to less than 50,000 MW. About 9,485 MW of coal capacity failed to clear in the auction.
Transmission Constraints Affect Regions
Clearing prices in the MAAC, ATSI, and PSEG Locational Deliverability Areas (LDA) were higher than in the balance of the RTO due to transmission constraints. Prices for ATSI dropped 68% from last year’s auction, however, due in part to planned transmission improvements to address reliability violations resulting from announced plant retirements.
Historical Role of RPM
PJM credited the Reliability Pricing Model with adding or preserving more than 58,000 MW of capacity in its 10 years of existence.
PJM has added 23,342 MW in installed capacity (ICAP) over that period, including a net increase of 7,858 MW in generation (28,178 MW in new generation, upgrades and reactivations less 20,319 MW in retirements) and 15,483 MW in demand response and energy efficiency.
Over the same period, PJM has gone from a net capacity export of 2,616 MW to net importer of 7,193 MW, a change of 9,809 MW. Canceled plant retirements also contributed 4,640 MW of capacity.
Impact of Environmental Regulations
The 2016/2017 planning year will be subject to the EPA Mercury and Air Toxics Standards (MATS), which are scheduled to take effect in 2015 with a possible one-year compliance extension to April 16, 2016. It also will be subject to the New Jersey High Electricity Demand Day (HEDD) rule, which sets NOx emission rates on intermediate and peaking units effective May 1, 2015.
