PJM Interconnection sells more energy at a higher price this year
PJM Interconnection, the nation’s largest grid operator, released its annual capacity auction results late last week. The auction is for capacity three years ahead – that is to say, the delivery year starting in 2018. This year’s results showed a 1% increase in demand response capacity cleared during the auction, while the price per megawatt-day increased by 25%.
PJM auctioned off 11,084 MW of demand response capacity, up from the year-ago level of 10,975 MW. This year’s auction included a “capacity performance requirement,” the aim of which is to ensure available capacity during extreme weather events, or other grid emergencies, in order to avoid skyrocketing power prices, like those that occurred during the polar vortex that occurred at the end of 2013. Of the 11,084 MW auctioned off, 1,484 MW fell into the performance category.
Pricing for this year’s auction was also much more bullish, with PJM auctioning off capacity at a base price of $150/MW-day, up from $120/MW-day during last year’s auction. The new payment numbers also represent a 37% increase over current payments, according to Utility Dive.
This year’s auction is the second consecutive year of price increases, as well as the second-highest price level ever, behind the 2007 auction. Two areas of the auction – Chicago and northern Illinois – saw capacity payments increase above $200/MW-day due to transmission constraints. The higher auction prices in parts of Illinois sparked anger among local groups, who said they could be paying $100 more per year without bolstered reliability.
The bullish auction was hailed as good news within the industry, but three nuclear plants may go out of service after they were unable to meet PJM’s new federally approved performance requirements. Exelon’s (ticker: EXC) Oyster Creek, Quad Cities and Three Mile Island nuclear plants did not meet the new requirements set in this year’s auction. It is expected that Exelon will announce the closure of the Quad Cities facility later this year when it must inform PJM of its availability for future auctions.