EPSA President and CEO Todd Snitchler digs into the PJM power generation auction results – and what they tell us about America’s changing electric grid.
“It’s all happening!” As Penny Lane noted in the Cameron Crowe classic “Almost Famous.” The long-delayed and much anticipated PJM Interconnection capacity auction has been completed for the 2022/2023 delivery year and the results provide much needed information for policy leaders, power generators, advocates and stakeholders of all types. This auction determines the electric generation resources depended on by 65 million Americans – its impacts for reliability, cost and the energy transition cannot be understated.
First, this and subsequent auctions slated in quick succession to get back “on schedule” are critical to ensure the reliability of the nation’s largest electric system. Alas, this essential point appears to be getting only lip service from many corners of the industry – that’s a mistake with potentially disastrous consequences.
Second, the price signals that this auction sends to market participants are vital to inform investment decisions for both the short and long term, including which generation resources will participate in the coming years.
Third, the price signals that this auction sends to market participants are vital to inform investment decisions for both the short and long term, including which generation resources will participate in the coming years.
So, let’s dig into the auction results and what they tell us.
- The capacity prices from the recently completed auction are $50/MW-day – a dramatic drop from the previous auction’s $140/MW-day. Capacity markets are vital to ensure system reliability and to provide sufficient revenue for resource owners to operate generation resources needed. While consumers appreciate low costs, this auction reveals important considerations for future market design. If PJM is going to re-evaluate its markets, the goal should be to properly design the capacity market to ensure reliability and secure sufficient generation resources to efficiently meet the needs of tomorrow’s grid.
- Further, zero emission resources cleared the auction in larger numbers than in past auctions; this affirms what everyone already knows – the resource mix is changing and moving toward low- and- zero emission resources. [Of note, more than 8,700 MW less coal generation cleared the auction, and more than 4,460 MW of nuclear capacity cleared compared to the previous auction.]
- What is more, the PJM price floors and/or the unit specific exemptions provided under the MOPR did exactly what they were intended to do: they ensured that all resources could participate in the auction in a competitive manner, and more importantly, clear the auction and earn capacity revenues at higher numbers than in any previous year. This demonstrates a market that is working to ensure reliability while also delivering the transition of the fleet to lower emitting resources including renewables.
- Competition continues to benefit consumers with prices remaining at or below historic lows, reflecting the lower energy input costs and increased efficiency of generating resources. Competitive markets also introduce greater transparency – these auction results help consumers see what it costs to reliably ensure power is delivered when they need it, along with the prices they will have to pay to utilize it.
In the end, the completion of the long-delayed auction is a step in the right direction toward ensuring reliable electricity for the 65 million customers in PJM. Further, the facts revealed by the auction should be a cautionary tale to policymakers and regulators who are drawn to the claims that some advocates made about PJM’s market design and the auction. That siren song served to deflect from the importance of a well-balanced auction by manufacturing concerns over the impact of policies they oppose to support calls for urgent action.
In contrast, the facts – and not the overheated rhetoric – demonstrate that there is time to complete a holistic review of PJM’s market and develop a thoughtful, well-designed approach to properly ensure that: 1) reliability is maintained; 2) costs remain affordable to all consumers including disadvantaged communities; and 3) emissions continue to decline in the region, which are already down more than 30% since 2005.
EPSA and our member companies are actively participating in and contributing to the conversation about how to best ensure PJM’s market – and competitive electricity markets throughout the U.S. – can deliver an affordable, reliable and cleaner energy future.
Find EPSA’s statement following the PJM auction results here.