Wednesday, January 23, 2019

UPDATE: PJM Capacity Prices Up 37% to $165/MW-day

ComEd Hits $215; EMAAC Rises to $225

By Rich Heidorn Jr. and Suzanne Herel

PJM’s first auction under its new Capacity Performance rules 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 Base Residual Auction procured 166,837 MW of capacity for delivery year 2018/19, giving the RTO a 19.8% reserve margin, well above the target of 15.7%.

pjm capacity auction

Price Premiums

Capacity Performance resources, which represented more than 80% of capacity acquired, were priced at a $15/MW-day premium to base capacity in most of the RTO. In the winter-peaking PPL locational deliverability area (LDA), the premium was $90.

pjm capacity auction - capacity performance prices vs base generation

In the BGE and PEPCO LDAs, base demand response and energy efficiency priced at a discount of more than $100 compared with CP resources.

While CP resources are subject to stiff penalties for failure to perform during emergencies year-round, base capacity is only liable if it fails to perform during the summer peak period.

3 Exelon Nukes Fail to Clear

Clearing prices were generally in line with analysts’ expectations. But that was not enough for Exelon, which announced Monday that three of its nuclear plants — Quad Cities in Illinois, Oyster Creek in New Jersey and Three Mile Island in Pennsylvania — did not clear.

Oyster Creek is scheduled to be retired by 2019. Exelon said it expects to make a decision on retiring Quad Cities, which has lost about $300 million over the last six years, by September.

Spokesman Paul Elsberg declined to specify the price at which Exelon offered the three plants into the auction, citing “competitive reasons.” He said all of Exelon’s other nuclear plants in PJM cleared. That includes the Byron plant in Illinois, which the company says also has been losing money.

In last year’s auction, Oyster Creek, Byron and Quad Cities all failed to clear. But analysts said the company would earn almost $150 million more in capacity revenue from planning year 2017/18 than it would have if all of the company’s capacity had cleared because the additional supply would have reduced clearing prices. (See How Exelon Won by Losing.)

New Capacity

The auction, which ran from Aug. 10-14, also resulted in 3,500 MW of new capacity, most of it gas-fired, a decline from the 5,900 of new entry from last year’s auction.

Analysts cited higher interest rates, lower spark spreads and the short runway to the auction following FERC’s June order approving CP as reasons for the decline.

pjm capacity auction - new generation by type (pie chart)

More than 4,100 MW of new capacity offered into the auction, all but 600 MW clearing. The new cleared capacity includes 2,919.3 MW from new gas-fired combined-cycle generators and combustion turbines, and 587.6 MW from uprates to existing units. EMAAC and MAAC each cleared 526.7 MW of new units, while the rest of the RTO cleared 1,865.9 MW of new generation.

Public Service Enterprise Group announced Monday that its planned 540-MW combined-cycle plant in Woodbridge, N.J., was the winner in EMAAC.

Analysts for UBS Global Research said the other new combined-cycle plants were likely in Ohio or West Virginia, where they can obtain gas from the Utica shale play. They cited four proposed plants that had been seeking financing: Moundsville, 550 MW in West Virginia; Advanced Power’s 700-MW unit in Carroll County, Ohio; Clean Energy Future’s 800-MW facility in Lordstown, Ohio; and the 550-MW NTE Energy unit in Middletown, Ohio.

Imports

Generation imports clearing rose to almost 4,700 MW, a slight increase over last year, when PJM imposed capacity import limits because of concerns that transmission constraints might prevent some external resources from being able to deliver power into the RTO.

pjm capacity auction - cleared capacity imports 2018-19

Most of the imports clearing came from west of PJM and all met the requirements for exceptions to the import limits, meaning they will be paid the RTO clearing price. To qualify for the exception, they were required to have pseudo-ties allowing them to be treated as internal generation, subject to redispatch and locational pricing, have long-term firm transmission service and agree to abide by must-offer requirements.

Demand Response

 

pjm capacity auction - demand response and energy efficiency

Demand-side resources rebounded slightly following two straight years of decline from their peak for delivery year 2015/16.

More than 11,000 MW of demand response cleared, 1,484 of it CP — more annual DR than had ever cleared before, PJM said. Of 1,247 MW of energy efficiency cleared, 887 was CP. DR offers increased 3.4% from last year, with 95% clearing.

“That’s in the face of the uncertainty caused by the ongoing Supreme Court review of the EPSA case,” Stu Bresler, senior vice president for markets, said in a press conference late Friday. (See FERC Orders PJM to Include DR, EE in Transition Auctions.)

“I think we’ll see quite a bit of innovation at the DR level in order to figure out ways to aggregate resources and continue to participate and be Capacity Performance going forward,” Bresler added.

Demand response aggregator EnerNOC saw its stock rise 3.34% Monday to close at $8.35, after an intraday high of $8.71.

Renewables

Renewables with a nameplate capacity of more than 14,000 MW also cleared, including 6,600 MW of wind, 1,450 MW of it as CP.

About 857 MW of wind capacity offered into the auction — all of it clearing — an increase of almost 7% over last year. Based on wind’s 13% capacity factor, that translates to nameplate capacity of 6,594 MW.

Almost 184 MW of solar resources offered and cleared (484 MW of nameplate capacity at a 38% capacity factor), a jump of 58% from last year.

“An extremely small portion of that cleared as capacity performance, due, I would imagine to the risk of nonperformance in the winter months,” Bresler said.

Prices ‘as Expected’

Bresler said he was pleased that the RTO clearing price was in line with analysts’ expectations, saying it was an indicator of the “transparency” of the PJM market.

The $10.9 billion total cost of the capacity procured was a $3.4 billion increase over 2014 “right in the middle” of the $2 billion to $5 billion range PJM and the Market Monitor had predicted in a joint analysis, Bresler said.

Bresler acknowledged that the discount between CP and base capacity was generally smaller than the RTO and outside analysts had expected.

“But given the fact that we’re heading to 100% Capacity Performance two auctions from now … I don’t think that that result is bad at all. In fact I think that it’s a good result because the vast majority of resources offered at CP and wanted to take on that performance requirement.”

ComEd Break Out

ComEd prices broke out from the rest of the RTO as a result of reduced transmission capacity into the zone from MISO to the west, Bresler said.

Bresler said the capacity emergency transfer limit (CETL) into the ComEd LDA was reduced by 25% from 2014 due to several factors, including changes in MISO’s transmission system west of the LDA and “many changes” in firm transmission service reservations into and out of PJM from MISO and other areas.

“The net results of those combinations of factors was that when we did the transfer analysis into the ComEd zone we hit constraints to the western side of the ComEd zone much sooner than we have in the past, which required us to funnel the imports in the analysis from just the eastern direction. …That meant we hit a binding transmission limit for the transfers at a lower level.”

Consumer Reaction

The ComEd increase did not go over well with the Citizens Utility Board, a Chicago-based consumer group.

“For the second time in less than a year, consumers in the state — first in central and southern Illinois and now in northern Illinois — face significantly higher electric bills because of a flawed power-pricing system,” said CUB Executive Director David Kolata, in a reference to MISO’s capacity auction results in April, which saw a nine-fold increase in Illinois. (See Ill. AG Joins Call for Changes to MISO Auction Rules.)

“Illinois’ electricity market is not working well for consumers. This price spike is one more red flag that the rules governing the capacity auction open the door for power generators like Exelon, NRG and Dynegy to make windfall profits.”

CUB estimates that a typical family in ComEd will pay $3 to $7 per month more as a result of the PJM capacity results.

Comparison to 2014 Results

In addition to the impact of the new CP requirements, PJM said the auction results reflected changes approved by FERC in November to the RTO’s variable resource requirement (VRR) curve shape and gross cost of new entry (CONE) values (ER14-2940).

pjm capacity auction - clearing prices by year

In last year’s auction for delivery year 2017/18, annual resources cleared at $120/MW-day in most of PJM following rule changes that limited DR and generation imports. That represented a doubling of prices in Virginia, West Virginia, North Carolina and much of Ohio (from $59/MW-day in the 2013 BRA) and little change in MAAC and ATSI. The PSEG zone ($215/MW-day) was also flat.

pjm capacity auction - generation increase vs decrease by year

Last year’s rebound in prices were still below the $136/MW-day for 2015/16 and the all-time high of $174 set for delivery year 2010/11.

PJM will conduct transitional auctions to integrate CP resources into years for which the BRAs have already have been held, with the 2016/17 auction on Aug. 26-27 and the 2017/18 on Sept. 3-4.

In developing the CP proposal, Bresler said PJM officials surveyed natural gas generators to determine the cost of adding dual fuel capability. Lack of gas was one of the problems that contributed to the extraordinarily high forced outage rates during the polar vortex of January 2014.

“And the answers that we received back centered right around $40 or so per megawatt-day,” Bresler said. “So the increase we saw from last year to this year of about $45/MW-day really [was] very consistent with what we expected.”

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