In this list
Electric Power

Commodities 2021: PJM capacity auction, market rule updates, carbon pricing on tap

Commodities | Energy | Electric Power | Renewables | Natural Gas

Hydrogen: Beyond the Hype

Energy | Electric Power

Platts Forward Curves – Gas and Power

Energy | Oil | Energy Transition

APPEC 2023

Agriculture | Energy | Energy Transition | Electric Power | Emissions | Carbon | Renewables | Electricity

IPCC report urges government, investors to step up finance for global climate action

Electric Power | Electricity | Energy | Energy Transition | Emissions | Carbon | Hydrogen | Renewables | Metals | Non-Ferrous | Shipping

Southeast Asia may hold the key to Chinese aluminum smelters' production woes

For full access to real-time updates, breaking news, analysis, pricing and data visualization subscribe today.

Subscribe Now

Commodities 2021: PJM capacity auction, market rule updates, carbon pricing on tap


PJM will run first capacity auction since 2018

Focus on energy price formation improvements

Carbon pricing discussions to continue in 2021

  • Author
  • Jared Anderson
  • Editor
  • Richard Rubin
  • Commodity
  • Electric Power
  • Tags
  • Wind energy

New York — PJM Interconnection market participants and stakeholders in 2021 are looking forward to the first capacity market auction since 2018, while energy market price formation and more work on pricing carbon dioxide emissions will also be priorities as the fuel mix shifts more toward renewables.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

PJM ran its last base residual capacity auction in 2018 and missed the auctions in 2019 and 2020, meaning no capacity market price has been established for June 1, 2021, or beyond, Monitoring Analytics, PJM's independent market monitor said in its most recent quarterly state of the market report.

It's critical the various technical details surrounding the upcoming capacity auction, scheduled for May 2021, are handled properly amid multiple pre-auction deadlines.

Additional coverage

Commodities 2021: Global oil supply set for shake-up in 2021 as crude, refining squeeze resumes

Video: Five commodity themes for 2021

Commodity markets in 2020: A year in nine infographics

Some of the more important auction components include using correct market seller offer caps with correct application of the Federal Energy Regulatory Commission's minimum offer price rule, or MOPR, Joe Bowring, president of Monitoring Analytics, said in a recent email.

Bowring also said it is important that PJM and its stakeholders not attempt to overhaul the capacity market again. "The current PJM capacity market design has not been given the opportunity to succeed," he said in the state of the market report.

However, while an overall market redesign is not advised, Bowring pointed to specific rules that could be adjusted to allow the capacity market to function as intended. These include the shape and location of the capacity market demand curve, the application of nonperformance penalties, load forecasting accuracy and the role of demand side and energy efficiency resources.

Market design changes

Beyond the capacity market, PJM will focus on other market design improvements in 2021, while implementing rule changes approved by FERC in 2020.

PJM submitted proposed tariff revisions in August 2019 to comply with FERC's finding (ER19-2722) that PJM's fast-start pricing practices are unjust and unreasonable because they do not allow power prices to reflect the marginal cost of serving load.

The most important unresolved price formation issue, according to the IMM, is the real-time process for defining prices and the underlying process for dispatching the system using PJM's Security-Constrained Unit Commitment (SCED) to align with PJM's Locational Price Calculator (LPC) software.

PJM has broken its approach to improving fast-start pricing into three stages: short-, medium- and long-term changes. FERC approved the short-term changes in 2020 and PJM will continue to work toward the other changes in 2021.

PJM should also focus on not paying uplift when units do not follow dispatch and enforcing the must offer rule in the energy market for capacity resources, Bowring said in the email.

Fuel mix changes

US wholesale power markets are evolving as the energy transition is incentivizing substantial renewable energy buildouts across the country. PJM is no exception and an examination of its interconnection queue shows a wave of renewable energy capacity additions in 2021 and beyond.

The interconnection queue is like a waiting list for resources that want to plug into the wholesale power grid. Importantly, not all resources that submit interconnection queue requests are ultimately built, but the data paints a picture of the types of generation resources developers are looking to add to regional grids.

For example, there is nearly 18 GW of solar power capacity projected in service in 2021 and about 2.1 GW of solar plus storage also queued up for the year.

There is almost 5 GW of onshore wind power capacity scheduled to come online in 2021 and about 3 GW of natural gas-fired capacity.

Interestingly, solar also dominates over the longer term when considering all years covered by the interconnection queue, with 77.8 GW. The remaining resources, including offshore wind, range between about 14 GW to 23 GW.

Carbon pricing

Pricing carbon dioxide emissions from power generation with a tax or other mechanism was a major topic in PJM in 2020 that will advance into 2021.

"In 2020, we engaged consultant E3 to conduct an independent study that brings real data and analysis to inform decision-making – and it points to nondiscriminatory, competitive, market-based mechanisms – such as carbon pricing – to deliver the most efficient and cost-effective emissions reductions over the next decade and beyond," Todd Snitchler, president and CEO or merchant power generator trade group Electric Power Supply Association, said in an email.

"We also joined other energy groups and generators, clean energy advocates, and renewable developers to advance a conversation at FERC to implement carbon pricing in wholesale markets, including PJM, and we look forward to helping drive that discussion forward," Snitchler said.

The IMM largely agrees, stating in the state of the market report that implementing 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."

Regarding specific resource subsidies, Snitchler said E3's report shows cost-competitive and economic resources including nuclear will support our evolving and lower-carbon power generation mix.

"The report also shows that a region-wide carbon price or well-crafted clean energy standard have the ability to retain existing zero-emission resources at a significantly lower cost than state sponsored nuclear bailouts while simultaneously encouraging development of new low or no emission generating resources," he added.