By Suzanne Herel and Rich Heidorn Jr.
Capacity Performance resources cleared at $134/MW-day in the transition auction for the 2016/17 delivery year, PJM announced Monday.
PJM held the auction Aug. 26-27 to obtain CP resources for 60% of the updated reliability requirement for 2016/17, procuring its target of 95,097 MW.
The clearing price was well below the price cap of $165.27 — results that Stu Bresler, senior vice president for markets, said “demonstrated the competitiveness of the auction.”
But speaking at a conference in Boston, Jim Wilson, a consultant for consumer advocates, said PJM paid far more than it needed to, asserting it could have procured the CP resources for only an additional $30/MW-day rather than the “windfall” that resulted from the auction.
Market Monitor Joseph Bowring, also appearing at the conference, declined to comment on the results, saying he would be issuing a comprehensive report in a few weeks.
Of the capacity that cleared, 90,851 MW represented resources committed in previous auctions that now will be converted to the new product at a higher price. The remaining 4,246 MW did not have a prior commitment, or surpassed the level of a previous commitment.
Total capacity offered into the auction was 117,753 MW.
“There wasn’t anything that surprised me that much,” Bresler said in a press conference after the results were announced late Monday. “The clearing price was just about at the point where we expected it to be.
“I thought the level of demand response and energy efficiency was not surprising, so really I think in just about every way it was consistent with what we expected.”
The auction, part of a five-year transition period leading up to a single capacity product type for the 2020/21 delivery year, had been delayed in order to allow DR and energy efficiency resources to participate, per a FERC order. A second incremental auction, for the 2017/18 delivery year, is set for Thursday and Friday, with results expected to be posted on Sept. 9.
The Base Residual Auction for the delivery year — held in 2013, before the introduction of the tougher CP requirements — cleared at prices ranging from $59 to $119/MW-day in most of PJM, with the PSEG locational deliverability area at $219. (See Capacity Auction: New Generation, Imports Up, Prices, DR Down.)
FERC had ruled that the transition auctions would not be just and reasonable without permitting DR and energy efficiency to participate. (See FERC Orders PJM to Include DR, EE in Transition Auctions.)
Bresler said 619 MW of DR cleared the auction, of which 227 MW represented a new commitment. All 949 MW of energy efficiency offered cleared, including 423 MW of new resources.
Under the rules of the transition auctions, participation is optional, and market participants may offer all or part of resources that were committed under the Base Residual Auctions for those years as Capacity Performance resources.
The parameters of the transition auctions differ in three aspects, Bresler said: There were no locational constraints modeled; the target was 60%, not 100%, of the reliability requirement; and a price cap was implemented that was calculated to be 50% of the net cost of new entry.
The incremental cost of the transition auction was $2.3 billion, slightly below the estimate of $2.5 billion to $3.6 billion PJM and the Market Monitor had predicted, Bresler said.
Bresler sought to counter news reports that the new Capacity Performance auctions would greatly increase consumers’ power bills, noting that CP costs make up about 15% to 20% of energy bills, and that energy payments are expected to be lower because the new construct will result in better resource availability during times of extreme weather and grid stress.
Breaking down cleared megawatts of capacity by generation source, coal cleared 32,622.3; gas 29,629.4; and nuclear 26,099.8.
The RTO’s first Base Residual Auction under its new Capacity Performance rules, the results of which were released Aug. 21, saw prices rise 37% to $164.77/MW-day in most of the RTO, while the ComEd zone broke out at $215 and Eastern MAAC hit $225.42.
The construct allows capacity resources to receive higher prices in exchange for taking on more responsibilities and stiffer penalties for non-performance.
Capacity Performance resources, which represented more than 80% of capacity acquired in the BRA, were priced at a $15/MW-day premium to base capacity in most of the RTO. In the winter-peaking PPL LDA, the premium was $90. (See PJM Capacity Prices Up 37% to $165 /MW-day.)