Capacity auction attracts diverse, competitive resources

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PJM today released the results of its annual capacity auction, which successfully procured diverse and competitive power supplies for the 65 million people PJM serves.

The auction procures power supply resources to meet electricity needs for three years from now. PJM procured 163,627 megawatts of resources for the period of June 1, 2021, to May 31, 2022.

The auction produced a price of $140/megawatt-day for most of the PJM footprint, compared to $76.53/MW-day last year. Prices are higher in some regions due to transmission limits.

“PJM’s markets continue to retain a diverse set of resources and promote competition to support reliability of the grid,” said Andy Ott, president and CEO. “The high-performing resources participating in our markets ensure that customers have reliable electricity at the lowest reasonable cost.”

Overall in most locations prices in this year’s capacity auction were higher than prices in last year’s auction due to several factors, including:

  • Continuing low energy prices, which causes generators to seek revenues in the capacity market through higher offers.
  • An increase in the reference cost for new generators due to reduced energy revenues and an inflationary adjustment.
  • A decrease in total cleared capacity, including a reduction in offers from new resources.
  • Those factors driving higher prices were partially offset by a lower reliability requirement because of lower forecasts of future electricity demand.

The auction attracted a year-to-year increase in the amount of demand response, energy efficiency and renewable resources that commit to meet PJM’s strict performance standards.

A total of 11,126 MW of demand response cleared in the auction, representing an increase of 3,305 MW compared to last year’s auction. Demand response consists of retail customers who commit to voluntarily reduce their electricity usage during periods of high system demand and power prices. Energy efficiency accounts for the permanent installation of efficient lighting, refrigerators, air conditioners, motors, weatherization and process improvements that exceed then-current building codes, appliance standards, or relevant state or federal standards.

A total of 2,832 MW of energy efficiency also cleared, an increase of about 1,100 MW. A total of 1,417 MW of wind cleared in the auction, representing an increase of 529 MW.

“We are seeing an ever-increasing diversity of resources,” said Stu Bresler, senior vice president, Operations and Markets. “If you look at renewables, there was a significant increase in wind and solar. I was a little surprised by the amount of willing to commit as annual resources.

“If you took the wind assets that bid into the auction and converted them into nameplate generation, it converts into 8,126 megawatts. That’s an increase from 6,719 last year.”

Solar increased more than four-fold, with around 570 MW clearing compared to 125 MW last year. Bresler said that would convert to more than 1,640 MW compared to 637 MW last year.

“We’re pleased with the amount of renewable resources that were able to bid into our competitive auction,” said Bresler. “That diversity will serve our regional well, giving PJM the resources with which to maintain reliability of the grid.”

The auction cleared 500 MW more coal generation than last year’s auction. The auction also cleared 1,000 MW more gas-fired generation than last year’s auction including one new combined cycle plant. The auction cleared 19,900 MW of nuclear generation, about 7,400 MW less than last year’s auction.

Bresler said that, the reduction in nuclear was not a surprise, since it was consistent with analysts’ predictions before the auction.  He pointed out that, in fact, the reduction was less than some of the analysts’ predictions.

The total procured capacity in the auction represents a 21.5 percent reserve margin, compared to a 15.8 percent required reserve for the 2021-2022 delivery year. A healthy reserve shows that PJM will have more than adequate resources to meet electricity use needs and can lower the price for electricity.

2021/2022 Capacity Prices

Delivery Area Capacity Price Transmission Zone Affected
RTO $140/MW-day  
Eastern MAAC $165.73/MW-day Atlantic City Electric, Delmarva Power, Jersey Central Power & Light, PECO and Rockland Electric
ATSI $171.33/MW-day American Transmission Systems
BGE $200.30/MW-day Baltimore Gas & Electric
ComEd $195.55/MW-day ComEd
PSE&G $204.29/MW-day PSE&G

In five areas, the Eastern MAAC region, American Transmission Systems (ATSI), Baltimore Gas & Electric, ComEd, and Public Service Electric & Gas Co. (PSE&G), capacity prices are higher than the overall PJM price.

For Eastern MAAC, the price is $165.73/MW-day; for ATSI, the price is $171.33/MW-day; for Baltimore Gas & Electric, the price is $200.30/MW-day; for ComEd, the price is $195.55/MW-day; and for PSE&G, the price is $204.29/MW-day.

(The Eastern MAAC region consists of PSE&G, Jersey Central Power & Light, PECO, Atlantic City Electric, Delmarva Power and Rockland Electric. PSE&G has a different price than the rest of the Eastern MAAC region).