5 Takeaways from IMM State of the Market Report for PJM
A new independent report shows market competition continues to deliver results – including historically low power prices – for the 65 million customers served by the nation’s largest electric grid operator, PJM Interconnection.
“The PJM markets bring customers the benefits of competition,” said PJM’s independent market monitor (IMM) in its November “State of the Markets” report. The IMM added that wholesale electric power markets can achieve diverse energy goals – from reliability, to lower costs, to innovation and decarbonization.
But the IMM warns against policies and trends that undermine the ability of power generators to truly compete and innovate, and that hamper the ability of market forces to drive efficient outcomes and customer savings. The report pointed to Ohio nuclear and coal subsidies passed through controversial HB 6 legislation as an example of “out of market” interventions that allow uneconomic power plants to stay online, resulting in higher costs for customers and impeding the growth of new or more efficient technologies.
Key Takeaways and Quotes:
- Market competition keeps prices responsive – and it is delivering lower cost electricity to power our economy.
“Energy prices were lower in the first nine months of 2020 than in the first nine months of any year since the creation of PJM markets in 1999.”
- Competitive power markets are the gateway to future innovation, renewable growth and decarbonization.
“Organized, competitive wholesale power markets are the best way to facilitate the least cost path to decarbonization. Markets provide incentives for innovation and efficiency. Renewables can compete. Innovation will occur in renewable technologies in unpredictable and beneficial ways…
Markets provide technology neutral incentives to all market participants, including those who will introduce technologies not yet in existence…
Markets are also the most efficient way to integrate state supported renewable technologies.”
- Subsidies undermine competition and displace new, more economic generation resources.
“Subsidies are not part of the PJM market design but nonetheless threaten the foundations of the PJM Capacity Market as well as the competitiveness of PJM markets overall.”
- State policymakers should avoid undermining market progress with the Fixed Resource Requirement (FRR), which enables power reliability to be secured outside PJM’s competitive capacity market through a fixed contract. The FRR will increase electricity costs and stifle competitive alternatives.
“The FRR approach is a nonmarket approach that would replace market incentives with judgments about preferred technologies and about appropriate pricing. As made clear in recent MMU analyses of FRR options in Illinois, Maryland, New Jersey and Ohio, the FRR approach is likely to lead to significant increases in payments by customers…
Markets provide incentives to reduce costs and improve technology while the FRR approach would simply accept uneconomic offers as unavoidable and provide no incentives to reduce costs.”
- Carbon reductions can be best and most efficiently achieved through market-based mechanisms, such as price on carbon.
“If the PJM states decide that carbon is a pollutant with a negative value, a market approach to carbon is preferred to an inefficient technology or unit specific subsidy approach or inconsistent [Renewable Portfolio Standard] rules that in some cases subsidize carbon emitting resources. Implementation of a carbon price is a market approach which would let market participants respond in efficient and innovative ways to the price signal rather than relying on planners to identify specific technologies or resources to be subsidized.”
The Path Forward: Market-Based Mechanisms to Meet Social Goals
The IMM report concludes that while “the evolution of wholesale power markets is far from complete,” PJM’s markets remain effective for achieving energy goals now and into the future. The report adds, “The PJM market design has brought significant benefits to participants and the fundamental current design of PJM markets is sustainable. There is no reason to overturn the key components of the PJM capacity and energy markets.”
Rather than pursue subsidies to achieve policy goals such as decarbonization, the IMM says “Broader social goals can all be met with market-based mechanisms available to all market participants on a competitive basis and without discrimination.”
Going forward, the IMM encourages market participants to look to future enhancements that can continue positive outcomes for consumers and the grid, saying “The focus should be on the continued refinement of the market rules in order to ensure that the rules correctly incorporate the fundamentals of the markets, e.g. improved combined cycle modeling, accurate scarcity pricing, and matching dispatch and pricing intervals.”
With more than 50,000 MW of electric generation in the PJM region, EPSA and our member companies are committed to building consensus around durable market-based solutions that encourage the benefits of competition, provide business certainty, and incentivize the flexibility and innovation needed to meet the future. As an Energy + Environmental Economics report recently demonstrated, the PJM region could slash carbon emissions by 28% while achieving $2.8 billion in consumer savings through regional market-based approaches that tap the potential of PJM’s markets and expand power generation choice. We know that customers win when companies compete – and it’s our mission to build a foundation that enables power providers to bring least cost, reliable solutions to power our nation.
Learn More: E3 Study Shows PJM Region Can Cut Power Generation Emissions 28% With $2.8 Billion in Consumer Cost Savings Compared to Current State Policies | EPSA | October 28, 2020