The PJM Interconnection's 2022-2023 capacity auction cleared at prices that were "significantly lower" than the previous auction and well below analyst expectations.
The clearing price for the majority of the PJM footprint fell to $50/MW-day, PJM officials announced in a June 2 news release. This is down from $140/MW-day for the unconstrained regional transmission organization region in the 2021/2022 capacity auction.
Prices in regions with transmission constraints cleared higher but were still lower than the 2021-2022 auction results, PJM said.
"I think overall that was the expectation going into this auction, and certainly we did see that prices are down in this auction and down pretty significantly," Stu Bresler, PJM's senior vice president of market services, said in a June 2 media briefing on the results.
Outside of the RTO region, prices cleared at $68.96/MW-day in the ComEd area, $71.69/MW-day for Duke Energy Ohio & Kentucky, $95.79/MW-day in the MAAC region, $97.86/MW-day in Eastern MAAC and $126.50/MW-day for the Baltimore Gas & Electric zone.
Morgan Stanley forecast RTO clearing prices in the $90/MW-day to $110/MW-day range, while Moody's also expected prices to drop from the previous auction based on increasing supply and decreasing demand.
"There are several reasons why the prices resulting from this auction were significantly lower than the last auction," Bresler said. "First and foremost, we had a lower load forecast for [20]22-23 than we had for [20]21-22 in the last auction. And that lower load forecast itself translates into a lower reliability requirement that we have to meet for that delivery year. ... In many of those [constrained] areas, the transmission capability into those areas went up, which means the reliability requirement in those constrained areas was also lower."
PJM also reported a 19% reduction in the net cost of new entry, which is used to estimate the cost of building new generation that plans to enter the market.
"Finally, on the supply side, overall we saw just lower offers from resources participating in the auction," Bresler said. "So basically, we saw a shift downward of the supply curve, really across the system."
PJM said the results show "robust reliability, really at affordable prices for consumers."
The delayed capacity auction, last held May 2018, procured 144,477 MW of resources for the June 2022 to May 2023 delivery year at a total cost of $3.9 billion, and with a 21% reserve margin, PJM announced. The grid operator said this amounts to a $4.4 billion reduction in total cost compared to the previous capacity auction, or Base Residual Auction, when adjusted for fixed resource requirement, or FRR, elections.
Cleared coal capacity declines
"Renewables, nuclear and new natural gas generators saw the greatest increases in cleared capacity, while coal units saw the largest decrease," PJM said in the news release.
There was a reduction of 8,175 MW of coal generation from the previous auction, when accounting for resources committed to FRR plans, according to PJM.
Nuclear generation, meanwhile, cleared an additional 4,460 MW compared to the 2018 auction when accounting for FRR elections.
On the renewables front, more than 1,700 MW of wind and more than 1,500 MW of solar cleared the 2022-2023 auction, the results show.
"Newer, more efficient combined-cycle natural gas plants also saw a significant increase, adding more than 3,414 MW of capacity," PJM announced.
Cleared energy efficiency programs increased by about 2,000 MW, while demand response was down more than 2,300 MW, according to the grid operator.
The capacity auction was pushed back after the Federal Energy Regulatory Commission determined that PJM's capacity market rules failed to protect the market from the price-suppressive impacts of out-of-market state support for certain resources, such as renewable and nuclear generation.
FERC mandated PJM expand its minimum offer price rule, or MOPR, to set administrative price floors for all new and some existing resources seeking to bid into its capacity market that receive material state subsidies.
In response, Dominion Energy Inc. subsidiary Dominion Energy Virginia, known legally as Virginia Electric and Power Co., removed about 17,000 MW of resources and load out of the May capacity auction and instead chose the FRR option. By pursuing this route, Dominion must demonstrate to PJM that it has enough capacity to serve 100% of the load and load growth in its service territory.
"There probably was some impact of the MOPR in this auction," Bresler said. "I can't get resource-specific because we cannot make resource-specific results public. I can tell you that there were some resources that were subject to the MOPR that did not clear in the auction. ... However, when you look at the pricing results from this auction, together with the fact that there were such significant increases in wind, in solar, in committed nuclear resources, it's hard to see how the MOPR had a significant or a large impact on this auction. And that's really what we expected."
PJM, which typically holds auctions on an annual basis to procure capacity three years in advance, will hold its next capacity auction in December for the 2023-2024 delivery year.
