By Adam Keech, executive director – Market Operations
If the results of PJM’s annual capacity auction showed anything, it is that the markets are working as intended.
This was a successful auction that procured diverse and competitive resources, ensuring that PJM can continue to provide electricity reliably, with increasing efficiency and at the lowest reasonable cost.
This is the second auction where PJM’s stricter performance standards apply to all resources cleared in the auction. Under these standards, all capacity resources must operate as-directed during a system emergency or face significant nonperformance charges on the order of $4,000/MWh.
PJM procured 163,627 megawatts of total resources for 2021/2022, with a price of $140/megawatt-day for most of the PJM footprint.
There were some expected results:
- Prices increased due to a combination of an increase in the net cost of new entry and a long-expected reduction in the cleared reserve margin.
- The quantity of nuclear generation that cleared in the auction decreased by 7,473 MW. This was expected due to the recent retirement notices submitted for four nuclear units in the PJM service area. Although the reduction in cleared nuclear was in excess of the units that have submitted retirement notices, it is less than some analysts expected.
Other market outcomes were not widely anticipated:
- The auction procured about 11,126 MW of demand response, an increase of 3,305 MW or 42 percent over last year.
- A total of 2,832 MW of energy efficiency also cleared, an increase of 1,122 MW or 66 percent over last year.
- A total of 1,417 MW of wind cleared in the auction, representing an increase of 529 MW or 60 percent.
- The amount of solar increased more than fourfold, with 570 MW clearing versus 125 MW last year.
- The market cleared a total of 715 MW of aggregated annual capacity. Aggregated capacity is composed of two seasonal resources that PJM matches as part of the market clearing to make an annual resource. For example, a wind resource that can meet capacity demands in the winter pairs up with a solar resource better equipped to provide capacity in the summer. This quantity is up 80 percent from the prior auction.
Results such as these were not anticipated due to the strict performance standards. Resource types such as renewables and demand response are typically thought of as seasonal assets that have some ability to meet the reliability needs of the grid but are unable to perform consistently for the entire year.
Further, when PJM transitioned to a single, annual, capacity product with strict performance requirements, concerns were raised that resource types such as these would be shut out of the capacity market, and the value they provide would be lost.
These results answer those concerns with good news. Set high standards, and people will work to achieve them. That’s what we believe happened this year.
The results are impressive, and demonstrate that PJM’s markets continue to provide a level playing field for all resources to be able to compete, and our fuel mix is now more diverse than ever before.
This did not happen in a vacuum.
In recognition of the evolving fuel mix, PJM recently launched the Valuing Fuel Security initiative. In it, PJM looks at how its market-based approach can work to achieve a cost-effective, fuel-secure fleet of resources.
This follows the 2017 study PJM’s Evolving Resource Mix and System Reliability, in which PJM found that the system could remain reliable under an array of future supply portfolios.
PJM and its stakeholders have conducted hours of conversation through committees, subcommittees and task forces. As we move forward, PJM knows it must remain nimble in its efforts to keep the markets safe and operating as the energy industry changes.
This auction showed that PJM has done that and will continue to do so.