PJM Releases Analysis of Clean Power Plan

PJM today released its analysis of the impacts on wholesale electricity costs and grid reliability of the Environmental Protection Agency’s Final Clean Power Plan rule. PJM conducted the analysis at the request of the Organization of PJM States, Inc.

The report states that, overall, the carbon dioxide emissions reduction goals of the CPP can be achieved within the PJM footprint under each of the seven compliance pathways studied without compromising the fundamental way in which the PJM market operates. It also states that, regardless of the compliance pathway, including sensitivities that PJM evaluated, resource adequacy can be maintained in the PJM footprint.

Compliance cost, market prices and the impacts on specific groups of resources vary significantly by compliance pathway. However, regional compliance leads to lower costs than individual state compliance under both mass-based and rate-based compliance pathways.

“PJM is an important resource that can help the states understand the effects of the Clean Power Plan, whatever their positions on the rule,” said Denise Foster, vice president – State and Member Services. “We provide an independent analysis on the potential economic and reliability impacts of rules and legislation.”

Foster stressed that PJM’s analysis is not a prediction of future market outcomes or of the decisions that resource owners may make.

In its evaluation of the Clean Power Plan, PJM considered a reference scenario (without CPP impacts) and seven possible compliance pathways that state agencies might undertake to achieve the carbon dioxide targets in the final CPP.

The Clean Power Plan limits carbon dioxide emissions from existing power generation resources. The EPA also presented a federal plan, which is a backstop for the states if they do not act that details model rules for regional mass-based and rate-based emissions trading.

Rate-based compliance pathways result in lower wholesale energy but higher capacity market prices across the PJM footprint than the reference case and mass-based compliance pathways because resources with production subsidies submit energy offers below their cost of production.

Rate-based compliance results in higher capacity prices because lower energy market prices drive a greater reliance on the capacity market to provide revenues to generation resources to maintain resource adequacy. This results in increased economic challenges for existing nuclear resources.

Under mass-based compliance, all resources subject to the Clean Power Plan face an additional cost for emissions in the form of allowances, which results in energy market offers at least as great, or greater than, their actual fuel and variable operations and maintenance costs.

Because of higher energy market prices as CO2-emitting resources reflect the cost of CO2 allowances, all low-emitting or zero-emitting resources depend less on out-of-market payments to achieve revenue adequacy. This allows existing nuclear resources to become more economically viable because their low-emission characteristic is priced in the market.

At OPSI’s request, PJM evaluated sensitivities of various input assumptions to better understand the impact of factors such as natural gas prices and renewable portfolio standards. A lower natural gas price forecast has a greater effect on emissions levels than even the most stringent of compliance pathway studied.

PJM also examined sensitivities with resource owners making retirement decisions based on a near-term, five-year outlook – a view that present market conditions would continue in the long run – rather than decisions optimized over 20 years . Under that sensitivity, more nuclear units likely would retire, carbon dioxide emissions would increase, and overall wholesale energy costs would increase.

On Feb. 9, the U.S. Supreme Court issued a “stay” of implementation of the Clean Power Plan while judicial proceedings continue. The federal court appeal is ongoing. The decision delays implementation that otherwise would have occurred during the appeals process.